SEI Investments Co (SEIC) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the SEI fourth quarter earnings conference call. At the request of our host, all participants are presently in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)And as a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Mr. Al West, Chairman and CEO.Please go ahead, Mr. West.

Thank you. Welcome, everybody, and good afternoon. All of our segment leaders are with me on the call, as well as Dennis McGonigle, SEI's CFO, and Rob Silvestri, SEI's Treasurer.I will start by recapping the fourth quarter and the year 2010. And then I will turn it over to Dennis, first, to expand on a few financial matters and then to cover LSV and investment in the new business segment. After that, each of the business segment leaders will comment on the results of their segments. And, finally, Rob Silvestri will provide you with some important company-wide statistics. As usual, we'll field questions at the end of each report.

Let me start with the fourth quarter and full year 2010. Fourth quarter earnings increased by 36% from a year ago. Diluted earnings per share for the fourth quarter of $0.33 represents a 38% increase from the $0.24 reported for the fourth quarter of 2009. For the year, our earnings grew by 33%. Diluted earnings per share for the full year of $1.22 is a 34% increase over the $0.91 reported in 2009. We also reported a 19% decrease in revenue during the fourth quarter and a 15% drop from 2009 to 2010. But the decrease was due to the deconsolidation of LSV as we returned to the equity accounting method at the beginning of 2010. Excluding the effects of LSV's revenue in 2009, fourth quarter 2010 revenues grew by 4% over fourth quarter 2009 revenue. Fortunately this is the last quarter we will have to suffer the distortions in year to year revenue comparisons caused by the deconsolidation of LSV.

While our earnings for the quarter are unaffected by the change in accounting treatment of LSV, they were affected by gains attributable to the SIVs on our balance sheet which netted to an increase of earnings of approximately $14.3 million, primarily due to cash repayments and the increased market value of certain SIVs. This compares to a $4 million charge to earnings in the fourth quarter 2009. Now, in addition to SIVs there were several other events that affected fourth quarter earnings. Dennis will cover the significant ones later.

Also during the fourth quarter 2010, our non-cash asset balances under management increased by $8.5 billion. Of that, SEI's assets under management grew by $3 billion in the quarter while LSV's assets under management grew by $5.5 billion. In addition during the fourth quarter, we repurchased 1,405,000 shares of stock at an average price of just over $23 per share. That translates to close to $33 million of stock repurchases during the quarter. For the entire year, the numbers are 5,814,000 shares purchased at an average price just under $21 a share, representing $121 million of repurchases.

New recurring revenue sales, while above 2009 sales are still slower than we would like. Each of the segment heads will address their sales events. Now we are continuing our investment in GWP and its operational infrastructure for our future.During the fourth quarter we capitalized approximately $10.6 million of the global platform development and amortized approximately $6.2 million of previously capitalized development. Expenses related to GWP, both developmental and operational, have been growing and will continue to trend up during 2011 and 2012. We are increasing the speed of our GWP development as we build functionality for our new UK client, as well as the functionality necessary to process US banks and advisers.

For instance, we recently completed and are currently in final testing of the first release with major US functionality in it. We are also investing in automation aimed at enhancing our operational efficiency and scale. While our focus is always on serving our clients and managing our costs, our attention has shifted to capturing new clients. As we finish the, quote-unquote, factory necessary to serve US and UK clients, we are beginning to benefit from the investments we have made. We are firm in our belief that these investments are helping our clients succeed in building a strong growing company.

This concludes my remarks and I will now turn it over to Dennis McGonigle to cover some Company-wide financial issues and give you an update on LSV and the investment initiatives. After that I will turn it over to the heads of the other business segments. Dennis?

Thanks, Al.Good afternoon, everyone.I will cover fourth quarter results for the investments in new business segment and make a few brief comments on LSV asset management, our SIV holdings and a couple of other items during the quarter.

During the fourth quarter 2010, the investments in new business segment continued its focus on direct marketing and research activities directed to the ultra high net worth investor and the further development of services. During the quarter, the investments in new business segment incurred a loss of $2.1 million. This compares to a loss during the third quarter 2010 of $3.1 million. This decrease loss was due to a one-time expense of approximately $900,000 that impacted the third quarter. We expect losses in the segment to continue in this range during 2011.

Regarding LSV, we continue to own approximately 42% of LSV. LSV contributed approximately $26.6 million in income to SEI during the quarter. This compares to approximately $25.2 million in the third quarter of 2010. This increase is due primarily to the increased revenues at LSV from higher asset balance. Asset balances grew approximately $5.5 billion during the quarter, primarily from market appreciation. Cash flows at LSV were positive by approximately $400 million during the quarter.

During the quarter, we generated gains totaling $14.3 million in the SIV securities we hold on our balance sheet. These gains were primarily a result of cash distributions we received during the quarter and an increase in the mark-to-market value of one of our holdings, Stanfield Victoria. As of today, our SIV holdings carry an aggregate mark-to-market value of approximately $100 million. As you will remember, during the third quarter we made adjustments to certain estimates on the attainment of divesting EPS targets on certain options previously granted.

As mentioned during the third quarter, these charges resulted in a net $3.2 million reduction in expense related to stock based compensation during that quarter. We also mentioned that these estimate changes would result in an increase in fourth quarter expense related to stock based compensation. Total option expense for the fourth quarter was approximately $10.4 million. This compares to total option expense during the third quarter of $3.5 million. Estimated option expense for the first quarter of 2011 will be approximately $3.6 million under our current assumptions. Both the third quarter decrease and the fourth quarter increase in stock option expense was spread amongst the reporting segments and G&A.

During the quarter, we also incurred a one-time charge of approximately $1.7 million reflected in other expenses in connection with our contribution to terminate and wind up a collective investment trust product for which we acted as trustee. Also during the quarter, our tax rate was approximately 34.7%, reflecting a slight reduction from prior quarters. This reduction was due to the extension of the R&D tax credit recently enacted by Congress. Given all the special items incurred during the quarter, we look at the quarter as having benefited by a net of approximately $0.03. I would also point out that full year earnings, as reported, of $1.22 when adjusted for our gains on the SIV holdings would have been approximately $1.07. Finally, during the fourth quarter we made a $25 million payment on our outstanding debt. Our current outstanding debt is $95 million.

I will now take any questions you may have.

(Operator Instructions)Our first question is going to be from the line of Mr. Aaron Teitelbaum from KBW. Please go ahead, sir.

Hello guys.Good morning, Dennis. I was just curious, in terms of the compensation in the quarter, was there any type of year-end true-up related to incentive comp? Or is that outside, obviously, of the stock based stuff that you mentioned before, a good run rate to think about?

Yes, it's outside the stock based comp. If you look at our normal run rate through the year for the first three quarters, the true-up in the fourth quarter was an additional approximately $3 million across the Company of incentive compensation over what our run rate had been up to that quarter.

Okay, great. Switching gears a bit, actually just from a modeling perspective since we don't get it on earnings, is there any way you could provide the ballpark LSV revenue number for the quarter?

Sure. Hold on one second, I'll get it out.LSV's revenues in the fourth quarter were approximately $73.3 million.

Great. One final follow-up on the buy back, I was just curious to hear your thoughts, has there been any change regarding the buy back, or was the decline of buy back activity really just a timing thing or really the status quo persists as you manage your capital in this environment?

I would say generally the status quo continues. I think what I saw in the fourth quarter, though, that volumes really slowed down. Trading volumes in the market overall, but also in our stock. So I would say that had a little bit of an impact on our buying pattern in the fourth quarter. But I would say really no change to our program. And we still have approximately $100 million authorized at this stage remaining under our authorization.

Our next question is from the line of Glenn Greene from Oppenheimer. Please go ahead, Mr. Greene.

Good afternoon. Hello, Dennis. Thanks for the clarification on a lot of items. But just want to boil it down. It basically sounds like the options expense is $7 million higher than last quarter. You've got the $1.7 million charge. A good run rate on a normalized operating expense basis is close to 170, 171. Is that the way to be think about it? And is there any other unusual option situation which we should be thinking about going forward.

I think we'd always like to have the unusual -- hopefully it's not unusual -- option situation where we start hitting these EPS targets sooner than we assumed. That would be a good thing which would cause us to accelerate more expense. I don't see that. Right now I think our assumptions are pretty stable.

Am I thinking about that right -- 170, 171 or so, is a good run rate, with a little bit of growth maybe?

I would have to do some more homework on that before I comment. Your 171, I don't know how you got there exactly. But I think the things we try to point out as special items in the quarter, I think certainly, the SIV stuff obviously had a positive impact. The option expense is probably the largest expense item that affected all of the segments. I'm sure all of the segment heads will include it in their comments, a little bit about their profits. The bulk of that went to banking and then the rest was spread amongst the other segments.

Okay. Thanks. I will follow up later.

Our next question is from the line of Mr. Tom McCrohan from Janney. Please go ahead.

Hello, Dennis, hello, everyone. Just one more question on the stock options. So the $7 million, above normal amount this quarter. Half was due to the acceleration of divesting of options. What was the other half due to?

It was all due to the options that were vesting last year. But the uptick was really the change in assumptions we made in the third quarter that a couple tranches of options we're going to invest a year earlier than we had previously assumed. And then, as I mentioned, as we move into this year, we are back to, I used $3.6 million level per quarter.

So the vesting of the options are tied to EPS targets?

Yes.

But you weren't achieving the EPS targets as soon as you had originally anticipated?

No. In some cases, on some option grants we actually achieved them essentially a year earlier. Back in the third quarter there was one tranche of options that we felt the ability to hit those targets, which their options issued before the recession hit, we felt the timing necessary to hit those EPS targets would be much more difficult. So we unwound the expense on those options. That's where we got the benefit from in the third quarter.

Okay. And then following up on what Glenn was trying to get to, if we take the reported operating expense number this quarter adjusted for the $7 million or so of higher than normal stock options, what's the variability around that going into '11 that could move that number higher?

Unless something fairly significant changes that would change our expectations around EPS targets, our option expense should be pretty stable. Beyond that, as it relates to that topic, it's pretty much all there is to it.

There is, in Al's opening remarks, he was talking about 2011 will see some development and expenses associated with GWP trending higher. Is that going to be capitalized or is there some type of stuff that's going to flow through the P&L this year?

I think most of it will flow through the P&L and the comment really reflects a couple of things. One, and I don't want to steal Joe's thunder but he will comment on sales activity and banking. But as we matriculate clients on to GWP, and as we get more client experience in the UK with the platform and with our services offering, we uncover new things that the clients are interested in us doing, new services they'd like us to deliver, new functionality. So we continue to enhance the platform as it exists in the UK in its current production environment. And those types of enhancements we would flow through expense normally.

In terms of the other driver of cost, we really are pushing hard this year to get to the US.It's been, frankly, a long time coming. We have been at this a long time in the US and we've let it slide over the past couple of years to really focus on the UK market. But we really feel a sense of urgency to get to the US, not just for the bank business but also for the adviser business because of the opportunities that that platform and the services we will be able to deliver off that platform and will give us. So you're going to see some.And we are, obviously, going to manage expenses as tightly as we can. But you might see some uptick in expense because we are really pushing hard and pulling things into this year to try to get as much done as we can. We are also moving to a more 24/7 development cycle which does drive some cost to speed up, if you will, in terms of calendar time our development activities.

So does that mean -- I'm trying to figure out what, of the expense drivers, are due to expectations for head count that drift higher versus some type of acceleration of recognition of expense related to components of the system being live and therefore recognizing the expense. Do you have the current base of head count now to support what you need to support? Or should we be expecting head count to be heading higher in 11' to get ready for the US?

You probably would see a little bit of head count increase in operational areas, in system production areas, on development as we ramp up, which we have done some of the US development activities. There has been, I would say, growth more on the consultant side versus employee side. And we like that model because we can ramp that down quickly once we get through different development projects. Also, in our operational area, we continue to do offshoring, working with our offshore partners and moving some work outside of the US, which helps us on the cost side but also helps us on the delivery of an around the clock service offering. As well as it, frankly, improves quality, in many cases. But I think, in terms of my client implementation and installing clients, servicing clients, our head count should remain pretty stable. Hopefully we will have to add a few service people or relationship people because that translates into the fact that we've signed more customers.

Just last question and I will jump off. When do you expect to get a return in terms of acceleration in margins and earnings on these investments you are making?Is that a 2012 event?

We've talked for awhile now that we really see -- we saw 2010 as a year to start to sell and deliver more on a larger scale. We see 2011 as a continuation of that, and also deliver to the US, so we began to offer these types of services to our US markets, both banking and adviser. It has helped us with sales agendas in the US, particularly in the bank segment. I'm sure Joe can reference that. We see 2011 as the main objective of ours is to sell new business in banking in particular, and advisers as well. And then see the matriculation or the profit benefit of that start to matriculate in during 2012.

Thank you.

And we have a follow-up from Glenn Greene. Please go ahead, Mr. Greene.

Dennis, what was the recurring sales number in aggregate both for the quarter and the year?

I will let the units go through their numbers, their presentations, and then we can wrap it up. They are very excited to talk, as you can imagine.

I'm sure they are.

They are starting to give me the hook sign.

(Operator Instructions)There are no additional questions at this time.

Thank you, Dennis. I'm now going to turn it over to Joe Ujobai to discuss our banking segment. Joe?

Thank you, Al. I would like to give you an update on our activity and a review of the financials for the private banking segment. We remain focused on three growth opportunities. First, in the UK, growing our global services businesses by selling new clients and installing the backlog, which includes bringing up new clients and transferring their assets on the GWP.

First, selling the clients. During the quarter we signed another important new GWS client, True Potential. True Potential provides innovative administrative and investment services to almost 700 ISA firms. GWP will be the core infrastructure as they offer a new investment platform to their advisers. The leadership team of True Potential has a strong track record in the ISA space with solid growth plans. Key people gather assets over time but expect them to be a significant national count with similar potential as our relationships with Towry and Bestinvest. During the year we signed five new GWS clients and significantly grew our largest IWA relationship, Towry.Sales and market activity remain strong and we continue to both work and grow the pipeline identified in 2010.

Number two, installing the backlog and transferring assets to GWP. During the quarter we installed UK wealth management, a large UK IWA. UK wealth management is a business transformation client with a defined growth strategy. We will convert end clients and assets to the platform over time. During the first quarter of 2011, we expect to install both Bestinvest and True Potential. On the asset transfer side we are investing in technology people and process to facilitate this work.

In conclusion we are focused on continuing our sales momentum and working to maximize realized revenue. All of our clients have strong growth strategies enabled by their partnership with SEI. Second, in the US, as we prepare for the availability of GWP, we are focused on growing our revenue and recontracting current clients. Areas of US revenue growth include selling community banks and trust companies our GWS solution currently enabled by Trust 3000. As well as increasing sales activity in the regional bank segment. During the quarter we signed another important competitive local bank win for a full suite of services including investment processing, liquidity, brokerage and asset management. During 2010 we signed six new community banks.

As usual, we are also involved in recontracting current clients. During the fourth quarter we recontracted 11 clients for over $32 million, including one of our largest customers, USBank. For the year, we recontracted 30 clients for over $60 million. Recontracting rates or net downs continue to improve over previous years.

During the fourth quarter we sold net recurring wealth processing events of $10 million and nonrecurring events of $6 million. 2010 net wealth processing events totaled over $43 million, of which approximately $25 million is recurring revenue. The recurring revenue number represents 12 new clients, includes our UK and US businesses, and is calculated by determining expected fees at conversion, or average annualized contract minimums. I am encouraged by our 2010 investment processing sales events, both in the UK and the US. This is a significant improvement over recent years. I will remind you that some of these events are one-time and it also takes a long time, often over a year, to recognize recurring revenue. Also quarter to quarter sales event success may be inconsistent as we regain momentum in the business segment.

Finally, we continue to support our growth in the global asset management distribution partnerships. In the fourth quarter we saw continued evidence of cautious investor sentiment.Ending asset balances are up slightly compared to the third quarter at $13.5 billion. For the year, ending asset balances were up just under $1 billion.

As a financial update, I will focus my comments on a comparison to the third quarter and full year 2009, as well as remind you of some of the challenges we face in growing our near term revenue and profitability. For the quarter, revenue of $86 million was up compared to the prior quarter revenue of $83.5 million. Revenue for the year of $347 million was down about 4% from 2009. Profit for the quarter was approximately $5 million. Profit was impacted by increased expenses in the following areas. Global wealth services and other investment processing investments as we grow GWP in the UK, prepare for GWP in the US, as well as sign Trust 3000 clients. This increase cost is to support the eventual growth of our business including overall development expenses, operations and implementation, as well as sales compensation and other marketing costs.

Profit was also impacted by other personnel related costs, primarily a $2.3 million stock option expense. Overall profitability for the year was also impacted by the decline in revenue from previously announced lost clients, as well as lower revenue in some of our long term cross sell solutions such as our money market funds and brokerage, which have experienced declines in line with the rest of the industry. Despite improved wealth processing sales events, revenue and profit will continue to be under pressure due to the following reasons. The lead time required to realize recurring revenue of our wealth processing, both GWP and Trust 3000 sales, is long. As I mentioned, on average at least 12 months. And with business transition clients on GWP, the revenue growth opportunity is great but the recognition time frame is longer as we expect to convert assets over time, not on day one. In other words, it will take time for new wealth processing business to flow through to realize revenue.

As Al mentioned, and Dennis also in the questions, as we make progress in our business, such as continued sales momentum and growth in the UK, and we enter the US later this year, overall costs for GWS will grow. For example, in the UK we are adding capabilities to implement transition assets and grow more clients faster. For example, in addition to our discretionary portfolio management capabilities, we are building out self-directed or trading capabilities. We are also interested in investing in technology and operations to scale asset transition services. Additional investment is generally based on growing our market opportunity or scaling the operation. Long term as we drive scale, we would expect our operational costs per client to decrease.

We are working hard to sell new clients, realize revenue and manage expenses. Current financial results and short to mid-term challenges aside, I am encouraged by our signed deals and sales activity, and our ability to help our clients significantly grow their businesses. Our win-win GWS financial model ensures that as our clients grow, we will, too.

That's the conclusion of my prepared remarks and I would be happy to entertain any questions at this point.

(Operator Instructions)First we will hear from Aaron Teitelbaum with a follow-up, and then we will hear from Jeff Hopson and Tom McCrohan again. Mr. Teitelbaum, please go ahead.

Good morning, Joe. Would you mind framing for us, you said in the past, or at your investor day, you expected $20 million in revenue in 2011 relative to those you had signed. And I don't believe Bestinvest or this most recent signing were included in that. So, is there any way you could frame for us what that revised number might look like?

I can tell you it will be higher than the $20 million.We feel that we are in good progress to achieving that $20 million, and I would expect to exceed that in 2011 in realized revenue. It's really hard to put a number on that because we are getting close to converting these guys in the first quarter. But, as we know, these are asset transition clients so it does take some time. But I'm pretty confident that we will meet that $20 million number. And as the year goes on my confidence improves that we will be able to beat that. These are two fairly substantial clients for us, so I would say that we are working to drive that number up.

Okay, great. And just to clarify, the $2.3 million in stock option expense you mentioned before, that's your segment share of the $3.6 million that ran through the consolidated. Is that correct? Or is that the total for the segment?

Of the $7 million? It includes both the people that work directly in the sales marketing, client service areas, but also we allocate the expense associated with people in operations, people in platform development and similar transfer costs methodology that we would do for the actual expense or amortization.

Okay. And maybe just drilling down for my final question, on pricing, is there any way you can quantify for us the improvement? I think in the throes of the crisis, you said pricing was maybe down in the mid-teens and it improved maybe into the mid-single digits in terms of the net down. So is there any way you can frame that for us?

I think that given our strategy and what we have invested in, particularly with global wealth services as well as some of the work we have done on Trust 3000 in the last couple of years, we have been able to, as you mentioned, move those netdowns from mid-teens to mid-single digits. We contracted, I think I mentioned, about $60 million of revenue this year, and it was about smack in the middle of mid-single digits. Sometimes you have to add additional services to keep that revenue, but in general my sense is that our clients appreciate the direction we are headed and the investments we have made, and we have been able to minimize losses and netdowns.

Great. Thank you very much.

Next question is from the line of Jeff Hopson from Stifel.Please go ahead.

Okay, thanks a lot. So in terms of the US, is what I'm hearing is that the delivery of the US is now ahead of plan? Or where would you say you are relative to expectations maybe six or 12 months ago?

I think we are looking to bring our first clients up in the US in the second half of the year. We will start with adviser clients and then we will move over time to bank clients. I think if I can categorize delivery, in general we're a little bit later than we would like to be in general. But I think we are, obviously, getting a lot closer to it. And our ability to have conversations with our clients about their books of business or the value added around GWP is becoming a discussion that we have more often and more credibly with our clients. It's taking some time but we are looking to this first launch with, as Dennis and Al mentioned, with tax law is a huge step for us. And we are looking to bring some US clients on as soon as we can, but it will be a little bit later this year, into early next year on the bank side.

On the expense side, if you take out the $2.3 million, any way we can judge, then, how much increased expense we will see from that base rate?

If I look at the increased expenses in the fourth quarter, about a third of that was the stock option increase, about 28% of that was sales comp because we had a pretty strong sales comp quarter. And the rest of that was generally tied to investments around growing our business, so additional investments realized investments in GWP or even some work in trust as we bring up some of these new Trust 3000 clients. It's not easy to predict quarter to quarter what it will look like in 2011 but I can tell you that our investments are generally tied to our ability to grow this business. So we will keep looking at other costs, and where we think it makes sense to spend money to either bring a client faster or bring up a bigger client, we will do that.

And then if you can just talk about the pipeline and just think about where that pipeline was earlier this year. I assume maybe some have fallen off, some have been signed and then some new ones. Any sense of where that pipeline is?And then, as important, some of those that have been in the pipeline for awhile, anything new on the nature of the discussions?Is the environment improving at all in terms of their willingness to get to the finish line?

Signing always takes longer than any of us would like. I think we agree with that and so do the clients but we are obviously trying to get better at that. I feel good about the pipeline. I would say overall the pipeline has increased as we get momentum in the market. Some have dropped out. There are new ones that are in the pipeline. A couple of important ones, like Bestinvest and True Potential have closed. But I would generally characterize the pipeline as it gets bigger. I think it will see an increase in sales, closed business in 2011. I certainly believe that.

I would say one other characteristic of the pipeline is we are starting to see more firms that would have a traditional conversion versus this more asset or business transition conversion. We are getting access to some firms that maybe have some internal technology or operations installed versus those firms who are on third party custodians. That's really an update in the UK. In the US, I feel just as strongly about the pipeline. We mentioned, obviously, the Wilmington win was a significant win for us last year. Which was one of the first big takeaway wins. Our community bank opportunities are trending on the somewhat higher side, particularly toward the end of the year. And in general, that pipeline has strengthened. We moved some more resource onto that. And certainly as we get closer to the availability of the GWP, the interests of the market pick up. So I generally characterize the pipeline, both in the US and the UK, as improving and we have a lot of resources and people actively trying to close this business.

Thank you.

And we have a follow-up question from Tom McCrohan.Please go ahead, sir.

Thanks. Joe, can you give us any guidance on how much investment will be made in the GWP platform to get it ready for the US release later this year? Relative to the $10 million that was spent in capital this quarter. How will it trend this year?

It's probably about the same. We'll probably do more -- first of all, there is a lot of overlap between what we built for the UK and what we built for the US.So there's a lot of core services that we built for the UK that we'll now implement to the US.The $10 million or so a quarter in capitalization will probably continue. If you look inside that, a lot more of that will be directed toward things like, as we've talked about, bringing up US tax law functionality, connecting to the US street and additional asset types around US investors. So that mix will change and be somewhat focused on the core. But the noncore, what we call the discretionary, will have a lot more US.But we would expect that capitalization run rate to continue roughly the same throughout the year.

And how would you categorize your conversations right now with existing clients in the US regarding the new platform? And is that the base you're going to go after initially, the existing Trust 3000 bank clients, or are you opening this up to any bank?

We are opening it up to any bank. I think I talked about, at one of the calls last year, or maybe at the investor conference, we identified about 40 regional to large sized banks that were non SEI clients.Certainly GWP opens up the opportunity to have robust conversations there. But, frankly, we are having conversations in those banks around trust as firms have come out of the recession, banks have come out of the recession and have talked about how they will grow their businesses or are looking for ways to save money. We also think, and I've said this several times, that we get beyond trust departments and banks and we look at how banks have evolved their wealth management businesses with bank advisers, with other ways of delivering wealth management services. So I would say I characterize our conversations at US banks, again in early stages, but around a broader wealth management opportunity than specifically the trust accounts.

Thank you.

And we have a follow-up question from Glenn Greene. Please go ahead, sir.

Hi, Joe. Just back to the UK and GWP, and related to pipeline or activity levels, could you give some color on the activity with the PCIMs and private banks? Or is most of your activity predominantly IFA still?

I think a couple of interesting things are happening. Some of the larger IWAs, as they get bigger and believe they are bringing on that they have more scale, they are looking more and more every day like private client investment managers. They are taking a greater role in the structuring of the portfolio. That's another area where we have been building out some of the capabilities. We are increasing conversations with private client investment managers. And I mentioned earlier I would expect in 2011 to see some more of these traditional conversions where a firm might have some sort of infrastructure rather than using third party custodians and administrators, and that's primarily in the private client space. I would say we are reengaging or rediscovering, using an SEI word, discovery, with some of the banks. You may have seen, we announced a significant higher, a long term Barclays employee leader, and although we are again in early stages of rediscovery, we are engaged in conversations with those banks.

I would caution you that we are seeing emerging competition, so some technology solutions that may have been successful in countries like Switzerland are trying to move into other markets. And some firms that have developed technology for insurance companies are starting to get into our space. So we are seeing activity but we are also seeing emerging competition in those spaces. You'll see some natural progression towards other segments, as well as to the larger clients over the course of this year. I think True Potential is also an interesting one for us because they are, in some ways, a little bit different than, say Towry or Tenant, or Best. Rather than have a direct relationship with end investor they actually act as an intermediary to a large number, about 700 IFAs. So we are working with them to bundle our capabilities as they go to their clients with additional services, including an investment platform. So that's another segment for us, a platform for these firm that are intermediaries or other platforms. And I think there is opportunity there. And, although a lot of those services are the same services, almost all of the services are the same services that we deliver to our current clients and to our current pipeline. We are beginning to use some of the functionality of GWP around multi-firm and some of those capabilities that we've built. I think those the positive trends we are seeing in the market.

You mentioned, you brought up the competitive factors. Are these point solutions or are these the custodial bank? A little bit more color on what you meant by that.

We are seeing it from a bunch of different areas. We're seeing it from large technology providers. Firms that have built legacy technology awhile ago are trying to expand into other markets. We are seeing it from firms that maybe have been in other segments like large insurance companies. I'm still very sure we've built a very unique solution around global, around straight through, around interfacing with other solutions. We don't have a lot of required reconciliation of things. I also think we have probably the strongest certainly outsourced solution. Most of these firms are either technology or not fully outsourced. So we certainly have very strong competitive strength and value, but we are beginning to see some other players in the market as things start to heat up.

Thanks, Joe.

(Operator Instructions)No additional questions at this time.

Thanks, Joe.Our next segment is Investment Advisers and Wayne Withrow will cover that segment. Wayne?

Thanks, Al.During the fourth quarter we saw a strong improvement in our revenues and profits. Coinciding with the overall improvement in the financial markets. Quarter end assets under management increased from $30.4 billion at September 30 to $31.1 billion at December 31. This increase was driven solely by market appreciation as individual investors still remain cautious with respect to the financial markets. This caution is reflected in our net cash flow which was essentially flat this quarter with both receipts and disbursements coming in at roughly $1.3 billion. For the year, we had net negative cash flow of $123 million. However, it was a marked improvement from the negative $1.9 billion we experienced in 2009. This improvement was due mainly to a decrease in our disbursement rate. Revenues for the quarter increased $4.7 million from the third quarter driven by market appreciation. Profits for the quarter improved by $2.8 million compared to the third quarter, reflecting our increased revenues and continued expense controls. Margins improved to 41.2%.

For 2010, three of our biggest agenda items were to stabilize cash flow, recruit new advisers and to strengthen our partnerships with independent broker dealers. We made significant progress on these fronts. Cash flow, while slightly negative, was essentially flat. New advisers continue to sign on for our platform and we recruited 406 for the year and 103 for the fourth quarter. Net cash flow from new advisers totaled $780 million, up from $690 million for 2009. With respect to broker dealers, we have begun forming strategic partnerships, and in 2010, broker dealers were our number one source of qualified sales leads. In 2011, we will continue our efforts to improve cash flow, form strategic partnerships with broker dealers and recruit new advisers. Although I expect us to be somewhat more selective in accepting new advisors in 2011 when compared to 2010. During 2011, we will also have a significant focus on the global wealth platform as we prepare for a beta rollout during the summer.

In summary, our revenues and profits improved significantly during the fourth quarter driven by the general improvement in the financial markets. Cash flow, while disappointing in absolute terms, was significantly improved from the prior year and we hope to continue the momentum into 2011.

I welcome any questions you have.

(Operator Instructions)Our first question is a follow-up from the line of Aaron Teitelbaum and then we will hear from Tom McCrohan again.Mr. Teitelbaum, please go ahead.

Wayne, good afternoon. One question, really regarding the rollout of the flexible TAM or global wealth platform, how should we be thinking that in terms of the P&L?I know a lot of spending is in the bank segment. But should we be expecting maybe somewhat of an initial expense ramp or what? How should we be thinking about that?

I think for the segment you will see a parallel between expense recognized in the segment and the overall GWP expense that Dennis talked about.

Thanks.

And we have a follow-up from Mr. Tom McCrohan.Please go ahead, sir.

Hi, Wayne. How many advisors have signed up to help you pilot this new platform in the US this year? And give us some parameters around how long the pilot will last.

I think the beta is between 100 and 200 advisors. And we would expect that pilot to continue during the third or fourth quarter of this year.

Thank you.

(Operator Instructions)No additional questions at this time.

Thank you, Wayne. Our next segment is the Institutional Investor segment and I will turn it over to Ed Loughlin to discuss this segment.

Thanks, Al. Good afternoon, everyone. I will focus my remarks on progress achieved during the fourth quarter 2010 compared to the third quarter. Revenues approaching $54 million for the fourth quarter increased 5% compared to the third quarter of 2010. Capital market appreciation was a major contributor to revenue growth during the quarter. Quarterly profits of $25.7 million increased 2% versus the third quarter. Increased incentive comp and stock option expense for the quarter caused a slight margin decline to 48%. Asset balances increased by $4.3 billion during the year. Totaling $52.7 billion at year end. Ending asset balances increased $920 million for the quarter.

Client losses during the quarter caused net new client fundings to be negative $1.9 billion. This was the result of a large single asset mandate redemption, and several loss defined contribution clients due to competitors significantly reducing fees for the record keeping portion of those relationships. Our backlog of committed but unfunded assets at year end were $140 million. Sales activity continued during the fourth quarter with $303 million in new client sales for the quarter and totaling $3.4 billion for the year. Large institutional investors continued to be slow in making change decisions. The key driver for the institutional sales growth is the continued global adoption of SEI's pension and endowment solutions in our target markets. There continues to be favorable press coverage and thought leadership in the UK and in the Netherlands endorsing fiduciary management and outsourcing. This positive trend and our long history acting as a fiduciary manager in the US positions SEI well in the UK and in the European market. The value of our business proposition continues to be evident to prospective clients and we remain confident that institutional investors will return to the marketplace.

Our focus for 2011 is in three areas. We continue to build the pipeline to win new client relationships. We continue to provide clients with value added advice and client service. And we continue to differentiate our solution with investment strategies that are sensitive to clients obtaining their business goals.

Thank you very much and I'm happy to entertain any questions you may have.

Our first question is from the line of Jeff Hopson. (Operator Instructions)Mr. Hopson, go ahead.

Thanks a lot. On the stock option expense, can you give us the exact amount that hit your P&L?

It was about $ million.

So thinking about the pipeline and what your various clients are facing, any reason for the slowdown? Or maybe it's not a slowdown but just slow, of how clients are looking at the issues. And I am pretty sure that you don't have much exposure on the state and municipal side. Is that true?

That is true. To answer the first part of your question, as we think about it, historically the decision to make a change to our solution was really one dimensional. It was more just outsourcing this responsibility to a fiduciary manager like SEI. I think right now, though, and you probably see this in the press, there certainly is a lot of dialogue both in the US and also in the UK and other parts of Europe, about the need to really manage the liabilities better. It's all about liability management. The implication of that is to have more in fixed income and to be hedging your fixed income exposure. And I think that the challenge right now is many investors are concerned about making that type of a commitment which will be to some longer dated bonds or longer fixed income strategies in an environment that they feel as though interest rates are at a low.

Now, there is a lot of education that we are doing and others are doing in the marketplace to show them why it's still an appropriate time to do that. But I think that's part of the hesitation that we see, the fact that it's not just the outsourcing decision, it's also this strategy decision, as well. It's taking longer for them to be able to complete their due diligence.

Okay, got it. Thanks.

(Operator Instructions)No additional questions at this time.

Thank you, Ed. The final segment today is Investment Managers and I will turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone.I will briefly cover the financials of the segment for the fourth quarter of 2010, including our new sales, and then provide a brief update on the market.

For the fourth quarter of 2010, revenues for the segment totaled $42.6 million, which was $2 million or 5% higher than our revenues for the third quarter 2010. $5.5 million or 14.7% higher than our revenues for the fourth quarter 2009. This uptick in revenue is due to new business fundings, as well as an increase in one-time revenues primarily representing conversion and custom development fees. Our quarterly profit for the segment of $15.1 million was $300,000 or 1.9% higher than our profit for the third quarter 2010, and $2.8 million or 23.6% higher than our profit for the fourth quarter of 2009. The quarter over quarter increase in profit was mainly attributable to the increase in revenue offset by an increase in expense due to higher stock option expense, increased investments and incentive comp expense in the fourth quarter.

Our third party asset balances at the end of the fourth quarter of 2010 were $233.1 billion. Approximately $5.3 billion or 2.3% higher as compared to our asset balances at the end of the third quarter 2010. Our asset balances increased primarily due to market appreciation of $5.2 billion. During the fourth quarter of 2010, the segment had net new business sales events totaling $8.6 million in annualized revenue. This was another strong sales quarter. As usual, these sales will take time to matriculate into our financials as conversion time frames in general have lengthened.

In the beginning of 2010 I mentioned several key focus areas for our growth in the year. Specifically, expanding globally, continued push into the alternative market, expansion of our solutions, and finally growth with our existing clients. I am pleased to report that we have made progress on each of these areas during 2010. For example, over 10% of our new sales was from non US clients. Additionally, we've continued to build out and drive new innovative solutions such as middle office and front office to our key markets. Finally, we saw a solid uptick in new business from our existing clients this year in comparison to new names.

In looking ahead to 2011, I believe that the market environment will benefit by the continued demand by investment manufacturers' broader and deeper solutions around their front, middle and back office. Also, we will need to counter a continued cautious tone from investment managers as well as a sharpening of the competitive landscape in our industry. Our primary strategies for growth in 2011, we'll continue to be focused on our global opportunity, growth with our existing clients, and finally continued expansion of our solutions in the market.

So, in summary, I remain encouraged at our long term growth strategy and opportunity. We continue to see demand for outsourcing solutions in the market and we feel competitively positioned to continue to execute on this opportunity.

I will now turn it over for any questions you have.

(Operator Instructions)Our first question is a follow-up from Mr. Teitelbaum. Please go ahead, sir.

Real quick, I just was looking for maybe an update on the aggregate number of assets in EMEA. I believe it was $33 billion in your investor presentation. I'm curious what that number stood at year end.

I'm sorry, what assets?

The EMEA -- Europe, Middle East, Asia.I think that figure stood at $33 billion, if I'm not mistaken, in your June presentation.

I will have to follow up, I don't have that specific breakout.You are talking about the assets we have under administration, how much of them are from non US specifically within EMEA.

Exactly.

Yes, I don't have that specific number but I will follow up with you on that.

Okay, that's fair. Thanks.

(Operator Instructions) There are no additional questions at this time.

Thank you, Steve. I'm going to now turn it over to Rob Silvestri to give you a few Company-wide statistics. Rob?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. Fourth quarter 2010, cash flow from operations was $92.5 million, or $0.49 per share. Year to date December cash flow from operations, $213.3 million or $1.12 per share. Fourth quarter 2010 free cash flow was $54.6 million or $0.29 per share. Reflected in this number is $25 million of debt repayments. Year to date December free cash flow was $22.1 million or $0.12 per share. Reflected in this number is $138 million of debt repayments.

Fourth quarter 2010 capital expenditures, excluding capitalized software, was $2 million. Year to indict December capital expenditures was $18.9 million. Capital expenditures, excluding capitalized software, is expected to be approximately $20 million in 2011. The tax rate for fourth quarter 2010 was 34.7%. As Dennis mentioned earlier, this includes the year-to-date adjustment to reflect the reinstatement of the research and development tax credit. The third quarter 2010 tax rate was 37.8%. The full year 2010 tax rate was 37%, and we expect the 2011 tax rate to be approximately 37%, as well. The accounts payable balance at December 31, 2010, was $4.6 million.

We would also like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results.

Please feel free to ask any additional questions.

(Operator Instructions)We have a follow-up from Mr. Glenn Greene. Please go ahead.

Hello, Dennis.I'll ask you the same question.What was the aggregate recurring revenue signed in the quarter?

Between banking and IMS, we signed about $18.5 million of recurring revenue and about $6 million of one time.

Thanks.

(Operator Instructions)There are no additional questions at this time.

Thank you, Rob. So, ladies and gentlemen, looking back, despite some of the external conditions we faced and the impact of their results, the strength of our Company has allowed us to stay the course on building new sources of growth. When we look forward, we are cautiously optimistic that conditions are improving. We have made important strides in our key investments and definitely feel that our efforts are beginning to be rewarded.

And that concludes our afternoon. And if anybody has one last question, they may ask it or we will bid you adieu.

(Operator Instructions)No additional questions at this time.

Thank you for your attention and have a great afternoon. Thanks a lot.

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