SEI Investments Co (SEIC) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SEI investments fourth-quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate 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 our host, Mr. Al West, Chairman and CEO. Sir, please go ahead.

Thank you, and good afternoon, everybody. Welcome. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's controller. I'll start by recapping the fourth-quarter and full-year 2011. I'll then turn it over to Dennis to cover LSV and the investments and new business, and after that, each of the business segment leaders will comment on the results of their segments, and then finally, Kathy Heilig will provide you with some important Company-wide statistics. As usual, we will field questions at the end of each report.

So, let me start with the fourth-quarter and full-year 2011. Fourth-quarter earnings decreased by 29% from a year ago. Diluted earnings per share for the fourth quarter of $0.25 represents a 24% decrease from the $0.33 reported for the fourth quarter of 2010. Now, for the year 2011, our earnings decreased by 12%. And diluted earnings per share for the full year of $1.11 is a 9% percent decrease over the $1.22 reported in 2010. We also reported a 2% decrease in revenues from fourth-quarter 2010 to fourth-quarter 2011. And for the year 2011, revenues increased 3% over 2010 revenues.

Our earnings for the fourth quarter of 2010 and 2011 were affected by gains and losses attributable to the SIVs on our balance sheet, as well as the sale of other assets. Per quarter 2011, SIVs accounted for a loss of $700 million, -- $700,000, sorry, while in fourth-quarter 2010 SIVs and the sale of other assets netted to an increase to earnings of approximately $18 million. Also during the fourth quarter of 2011, our non-cash asset balances under management increased by [$10 billion]. Of that, SEI's assets under management grew by $5.7 billion during the quarter, while LSV's assets under management grew by $4.3 billion.

Please note that the capital markets performance, particularly at the end of the third quarter 2011 had a negative impact on fourth-quarter revenues in our asset management businesses. Our institutional investor segment was most negatively affected, due to the way that business segment calculates and takes fees. Ed Loughlin will address this issue in his comments. Now thanks to the stronger markets exiting 2011, our asset management fees should respond positively.

During the fourth quarter of 2011, we repurchased [$3.2 million of SEI stock] at an average price of just over $16 per share. That translates to over $52 million of stock repurchases during the quarter. For the entire year, the numbers are 11.1 million shares purchased at an average price of $19 a share, representing $211 million of repurchases. Net new recurring revenue sales, while better, are still slower than we would like. Nonetheless, the investment managers and private banking segment had good sales quarters, signing a number of accounts. In addition, the advisor segment added a number of new advisors to its roll. Plus, the advisor and institutional investor segments showed modest growth in net new business, and each of the segment heads will address their sales events when they talk about their segments. All in all, we generated over $20 million of net new sales events, of which $16 million were recurring revenues.

Turning our attention to GWP, we are continuing our investment in its functionality and its operational infrastructure so critical to our future. During the first quarter, we capitalized approximately $10.4 million of the Global Wealth Platform development and amortized approximately $7.3 million of previously-capitalized development. While we are increasingly encouraged with our long-term growth opportunities with the rollout of GWP, we are working hard to improve the profitability of our bank segment. We recently initiated a cost reduction and control program with particular emphasis on banking, and we began to see the results of some of these efforts in the fourth quarter.

We are concentrating our GWP efforts on capturing UK GWP markets, as well as launching GWP in the US. And for this reason, we are building the functionality and infrastructure necessary to process US banks and advisors, as well as enhance our service quality and efficiency. The next three GWP releases will complete the baseline functionality for the US, significantly enhance the UK functionality, and help to improve our operational efficiencies and scale.

I just returned from London where I met with a number of clients and prospects, and I continue to be encouraged by the feedback I'm receiving from our markets. Our investments in infrastructure and new service offerings are helping us outdistance our competitors across all of our business lines, and we certainly expect to capitalize on this, even in these challenging markets. Our new service offerings, coupled with our financial strength, positions us well for the long-term growth. This concludes my remarks so I'll ask Dennis McGonigle to give you an update on LSV and the investments and new business segment and after that I'll turn it over to the other business segments. Dennis?

Thanks, Al, good afternoon, everyone. I will cover the fourth-quarter results for the investments and new business segment, and make a few brief comments on LSV asset management. During the fourth quarter of 2011, the investments and new business segment continued its focus on marketing and sales activities directed to the ultra-high net worth investor and the further development of services. During the quarter the investments and new business segment incurred a loss of $2.2 million, which compares to a $1.5 million loss during the third quarter 2011. There's been no significant change in this segment, we expect losses in this segment to continue in this range during 2012.

Regarding LSV, we continue to own approximately 41% of LSV in the fourth quarter. LSV contributed approximately $23.4 million in income to SEI during the quarter. This compares to approximately $23.9 million in the third quarter of 2011. The decrease is due primarily to some fourth-quarter expense true-ups that were booked during the quarter. Asset balances grew approximately $4.3 billion during the quarter, primarily from market depreciation. LSV had net negative cash flow during the quarter of approximately $650 million. Net cash flows from new and lost clients were a positive $150 million, while net cash flows from existing clients due to rebalancing or reallocation were negative $800 million.

During the quarter, we generated losses totaling $700,000 from the SIV security we hold on our balance sheet. This loss was primarily a result of a decrease in the mark-to-market value of the collateral underlying the structure, offset by cash distributions we received during the quarter. As of today, our SIV holding carries a mark-to-market value of approximately $51 million. Finally, during the quarter, we made a $20 million payment on our outstanding debt. We currently have no debt. I will now take any questions you may have.

(Operator Instructions). Sir, I am showing no questions from the phone lines.

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

Thank you, Al. Today, I would like give you an update on our activities, and a review of the current financials for the private banking segment. I will cover both the comparison to the third quarter of 2011, as well as a year-over-year review. Revenue for the quarter was down slightly to the previous quarter, at $86 million. Quarterly recurring revenue was negatively impacted by lower average asset management balances in our distribution business during the quarter, and present during much of the fourth quarter.

Revenue for the year was up slightly compared to 2010, at $348 million. Year-over-year expenses increased 9%, largely due to the continued rollout of GWP. Core expenses continued to decline modestly quarter-over-quarter, as we implement our expense management programs. Fourth-quarter expenses include a one-time $1.2 million charge related to accrued asset management distribution fees in our Canadian business. We may take an additional charge in the first quarter, based on the same issue.

Turning to new business, net investment and processing sales events for the quarter was $11 million. Approximately half of this is recurring revenue. Net investment processing sales events for the year was $20 million. In the UK, we signed two new important deals, Berry Asset Management and Veritas Asset Management. Both firms are private client investment managers, and are the infrastructure business model. We expect to convert the majority of their assets by mid-year.

We now have 15 signed GWP clients in the UK. Seven are business transition clients and eight are infrastructure clients. Of the 15 clients, 8 firms are national IWAs, 5 firms are private client investment managers, and 2 are banks. These 15 clients give us a base to grow our business in the UK. The business transition clients have substantial assets to convert to GWP, and the infrastructure clients all have plans to grow their business. During 2011, net new cash flow on GWP was over $1.5 billion. Unfortunately, our asset balances are also subject to market depreciation. Year-end assets processed on GWP was $15.2 billion. The pipeline continues to grow as we replace closed deals with new opportunities, and expand to new segments such as larger private client investment managers. The UK GWP pipeline stands at approximately $60 million, and is beginning to lean more towards larger infrastructure-type clients.

Turning to the US, we closed one additional community bank, and due to a recent merger, we also signed a new book of business from one of our largest DSP clients. In 2012, we're moving our focus towards selling only GWP to new prospects. We are resetting the sales force and our marketing infrastructure to substantially create GWP sales activity here in the US. GWP gives us the opportunity to target many new names, and non-trust businesses at banks and other large wealth managers. Our US investment processing pipeline is the largest it has been in recent years, and is moving away from TRUST 3000 towards GWP. During the quarter, we recontracted 9 bank clients for $18 million, and for the year we recontracted 27 clients for $60 million. We have been working hard to secure our current business, and about 70% of our TRUST 3000 revenue is recontracted until 2015 or longer.

Finally, as a review of our asset management distribution business, new cash flows at SEI's management programs remain slow. Ending asset balances grew to $16.4 billion, largely due to the year-end market appreciation. In conclusion, in 2012 we were focused on, number one, improving private banking and GWP profitability, by maximizing revenue through asset transition and conversions, and managing expenses as we grow the revenue. And secondly, accelerating sales momentum through segment expansion in the UK, and market entry in the US. Are there any questions?

(Operator Instructions). Our first question in queue comes from Jeff Hopson of Stifel Nicolaus. Your line is open.

Hi, there, Joe. In terms of -- we got the press release on Berry, Veritas, anything that you can tell us about it?

Veritas is similar to Berry. As we expanded from those national IWA segment to the PCIM segment, some of the first PCIMs we signed are smaller firms, so, they have in the range of a couple of billion pounds, or a billion to a couple billion pounds of assets under management, and as the pipeline develops, we're seeing larger PCIMs in the firm, but Veritas is very similar to some of the first ones we have signed in the PCIM space.

Okay and any -- in terms of the larger entities in the pipeline, has anything changed? Is it just ongoing discussions, more awareness, anything that you can point to regarding those larger ones?

As I said, we have 15 clients signed, and 13 I believe installed now. We installed one of the clients last weekend. That gives us a lot more credibility with the larger firms. I think, again, some of the disruption in the market has certainly caused banks and other firms to be distracted but I think we're making good progress towards increasing the larger firms that will have a traditional conversion type of relationship with us.

Okay and in the US, you actually mentioned some potential clients in the pipeline. When would it be realistic to actually see a client sign on here? Even though the US is not completely ready?

We spent a lot of the last couple years really priming the market. As I mentioned earlier, we have spent some of the sales infrastructure and the marketing and even compensation for the US sales force around GWP. I would expect this is going to be a year of much more strenuous sales and marketing. But, I wouldn't expect to sign big names to the US in the earlier part of this year.

Okay, thanks.

Thank you. Our next question is from Chris Donat of Sandler O'Neill. Your line is open.

I was just seeing if you could help me quantify the cost saves that Al referred to in his comments, but specifically for the private bank segment. I don't know if there is a way to think about either in terms of a run rate for quarterly expenses or a target operating margin, but I'm just trying to get my arms around it, given that operating margins or profitability really has been sort of $1 million to $2 million in the last three quarters. If there's a way to think about expenses going forward?

A couple of things. One is TRUST 3000, our TRUST 3000 business remains a highly profitable business for us, and contributes some substantial profit to the unit. That profit has been reinvested in the build out of GWP. Last year, we saw expenses increase in a couple of areas. We thought an increase in development as we were delivering GWP to the US, and we brought up some advisors in the US last year, and preparing to bring up banks in the US towards the end of this year.

So, we had expense related to both development, as well as building out the operating structure, growing that in London, and beginning to build that in US. We did see that, particularly in the second quarter, some substantial expense growth. And, since then, we have really put some controls in place, to try to number one, firstly prevent continued substantial growth of expenses, but to try to keep expenses relatively at that current run rate. And then we continue to look at other opportunities in certain areas of our business to lower expenses.

So, we're not going to do anything to jeopardize the opportunity we think that we have, based on the investments that we have made. But, we are going to watch expenses, try not to grow them try to drive more scale in our businesses and then add new expense as we potentially -- as we continue to grow the business over time.

Okay, so if expenses grow, it will likely coincide with revenue growth, though? Right?

Yes, we're going to try to tie that to new clients, new segments, new revenue. And, manage the expense baseline as close to as possible where it's been as close as possible.

Okay, thanks.

Thank you. Our next question in queue comes from Glenn Greene, of Oppenheimer. Your line is open.

So just clarity on the $60 million pipeline, that was specific to the UK?

That's correct, yes.

And comedy of a quantification for the US pipeline or really not?

As we're talking, really GWP only to new prospects, that pipeline is shifting a bit. And so, I say that I'd characterize as probably as strong as it's been, really ever. But I'm really not quantifying it because were trying to qualify a lot of those names that are there and we are actively out pulling new names into pipeline as we've gotten much more focused in the US on selling GWP.

Okay, and then just going back to the UK, that $60 million from what I recall, used to be closer to $40 million or $45 million, or at least the last disclosure you gave in terms of the size of the pipeline, so what sort of -- maybe some color on the ramp of the pipeline? Is it mainly PCIMs and banks? And it sounds like you're alluding to some bigger prospects?

Yes. The average account size in the pipeline is growing. So, that means of some larger PCIM in that space. And then, what we sort of call jumbos, so some of the banks or books of business inside of the banks as well as other wealth managers, like insurance firms. I think the average size is getting larger.

Okay. And then, what might be a reasonable GWP expense level to think about for 2012?

I've said this last couple of calls, where we feel pretty strongly that we can manage the development expense, and really develop, spend money on development the grows new revenue. We're still getting the operating expense under control because, given the maturity of the platform, sometimes we add to new clients and the book of business that a little different than the previous book of business, so the goal is to -- we obviously have additional expense associated with amortization. But, but the goal is to try to keep things as tight as possible, and only spend money where we are going to get new revenue.

If I recall right, you were close to like a $100 million annual run rate? I think for 2011?

That's correct.

Plus or minus for 2012 or flat?

The number is actually a little bit more than $100 million, and again it depends on how much we pay out in sales commission. We hope to sell a heck of a lot this year, so we hope to pay out the sales commission, as I said, there's more amortization, but the things that we can control like development costs, we're keeping a tight eye on that.

And then just finally, directionally, the percentage of assets of your business transition clients that might have been converted at this point?

We're still at fairly low percentages probably 10% to 20% has been converted. Asset business transition is a little bit tougher than we have expected, I think than our clients have expected, and we were, as Al mentioned, we were in London last week talking to a number of clients, but we put more resources in place. We've moved some more resources to help those clients, we have built some more management information to help those clients, and we're very, very focused. We made a hire, specific in London that we announced towards the end of last year, to specifically focus on helping our firms, building the team to help our firms back to transition. But we're still having pretty low transition rates, so the opportunity is still fairly substantial for us.

Okay. Great. Thank you.

Thank you. The next question in queue is from Robert Lee of KBW. Your line is open.

Hey, Joe. Maybe kind of drilling into the new business a little bit, is it possible -- will two questions to start off, possible to get a sense of the $60 million of the sales events on a recurring basis? Kind of how much of that falls into the private bank segment? And then maybe the second piece, you kind of touched on it in terms of the business transition, maybe it's 10% to 20% complete, but is there anyway of kind of quantifying the book of business that contractually still is to be converted in total? Is your current feeling that may occur over a two or three year timeframe? Just trying to get a feel for how that may flow?

Sure. So your first question was about sales events. We had $11 million sales event quarter, and about half of that was recurring and the other half of that was nonrecurring, largely from projects we do for our clients here in US. So, out of the $20 million we announced for the Company, $11 million came from banking, and then about $5 million or $6 million or so of that is recurring from banking.

Our.

With regard to the opportunity in the business transition space, there are substantial assets out there. We've got about $15 billion of assets on the platform. If you go to all of our business transition clients, and add up of assets that they believe they have control over, there is easily another $30 billion to $50 billion of assets there. Some of those are in securities, or inside of say insurance vehicles and things, that may never transition. So, we believe that over time, that additional $30 billion to $50 billion of assets probably, 60% to 80% of that is convertible. And, I think again we have been selling IWAs now for the last couple of years.

We brought several of them on in 2010 and -- I'm sorry, a couple in late 2010, most of them on in 2011, most of our clients are in very, very early days of conversion. We think things like RDR, the change in the regulatory environment, is an absolutely positive market momentum activity for us. And, as I said, we put some additional resource in addition to people as well as MI and platform development to get these assets converted faster. So, the good news is that all of our clients have the exact same desire as us. They bought us because they wanted to have a single infrastructure. And, again, we're working with them to try to convert assets. So, we've got a few plans in place, plans that been agreed by every client and we will keep trudging away at it, but I think that will be an important part of our growth going forward.

Great, and maybe one follow-up if I could. On the recontracting, any kind of update on kind of the pricing environment? If I recall from the last call or two, it's, while still may be down, it had improved from certainly where it was a year or two ago. Any update on that?

We're still seeing a lot of pricing pressure in the market but, the more we can show our clients and talk to our clients about GWP, that helps our pricing position because people are buying into the vision and the investment that we've made. As I said on several calls, a few years ago we would experience net downs around 15%, and we pulled those net downs down to single digits, and I think we, given again what we've invested in our vision, we have an increasing presence in the market and will try to use that to prevent -- to really minimize net downs.

All right, great. Thanks for taking my question.

Thank you. Our next question in queue comes from Jeff Bronchick with Cove Street Capital, and your line is now open.

Good morning, gentlemen. Just again on beating the GWP horse, and I know pipeline is an ether-like concept, but is your focus in United States to start with some smaller players and get your feet wet and the larger players look at this and then act? Or, is your real focus to hook a really big profile bank and that will establish the credibility and momentum that will build the business forward?

I think we have a number of opportunities in the US, so certainly, in the community bank and large advisor space, we have begun to talk more actively in that market. And I think, with large firms, we talked mostly about a book of business or a segment of theirs, so I don't think the first thing would be -- I know the first thing wouldn't be to convert one of our large clients, or to bring on a very, very large book of business from a US bank. It would most likely be getting started with a segment of their business. Maybe an affluent segment or a business that they were now maybe focusing on concentrating to grow, but I wouldn't see us converting a very, very large book of business as a first client in one fell swoop.

Got it. And does the sales pitch work, you sign a contract, you make an announcement, and then you begin the install? Or, are you kind of in there with these prospects, beta testing, getting to nose around it and went everybody is comfortable, then you sign a deal and have an announcement?

Historically, it's where we signed a contract, but to get a contract signed, we do a lot of what we call discovery, so we spend a lot of time with the prospect, determining how we would improve their business model by moving them to GWP. So it's not really beta testing of technology, it's really looking at the services that we've developed, and lining those services up to the way they deliver their business today or the way they may want to in the future. So, there's a fair amount of work done prior to contract signing. And then, we sign in and then we do the more tradition conversion work, reworking business flows, converting data, those kinds of things.

Got it. And I'm sorry -- share repurchase is, you guys are continuing at a pretty steady space all through the year. Any material changes or thoughts on that in 2012?

I wouldn't be the one to answer that question. I would -- I'm sure we can comment on that at the end of the call.

Thank you.

Thank you. I show our next question is from Jeff Hopson of Stifel Nicolaus, and your line is open.

Joe, the charge you took, was that a revenue reduction or expense item, and what was it exactly? And why would you take another charge in the first quarter?

So, it was an expense item. So, some of our modest movement towards expense improvement got whacked down a little bit by that. And it had to do with, we had a distribution client in Canada and we work with a third party that calculates the fees and they give fees to the distributor and they give fees to us, and they were giving us too much of the fees back. And so, we identified that in January, and we did our best to calculate what that number would look like. We took $1.2 million in the first quarter, and now we're going back a little bit further -- sorry the fourth quarter, I'm sorry in the fourth quarter $1.2 million in the fourth quarter, and now we're going back looking a little further back in our relationship with that distributor.

Okay, and for the new client, the new clients that you announced, are there conversion fees when you bring them in the door?

There are some conversions -- now these are smaller PCIMs, so yes there are conversion fees with at least one of the two clients.

Okay. Great. Thanks.

Thank you, and I'm showing no other questions at this time.

Thanks, Joe. Our next segment is investment advisors, and Wayne Withrow will cover this. Wayne?

Thanks, Al. This past year was really a tale of two cities, with market depreciating nicely during the first six months, only to give up most of it back during the last six months. The only constant during the year was volatility. Revenues and profits for the advisor segment followed along with the market ups and downs, with the unit seeing stronger results during the first six months then it saw for the last six months.

For the year, revenues were $190 million, a 3% increase from 2010. The fourth quarter, on the other hand, experienced a 4% revenue decline from the third quarter. Fourth-quarter results reflect that a 60/40 diversified by the client portfolio appreciated 7.3% in the fourth quarter, but those gains were insufficient to cover the AUM decline caused by the 11.3% loss experience in the third quarter. Profits for the fourth quarter totaled $17.5 million, a $1.3 million drop from the third quarter. This was in line with our revenue decline and benefited from a slight reduction in expenses.

Assets under management were $30.4 billion at December 31, an increase of $1.6 billion from September 30. This increase was primarily due to market appreciation, and it was aided by $136 million in net positive cash flow. Keep in mind that revenue for this segment is recognized based on our average daily asset balances, not ending balances. The average daily balance was $29.9 billion, a 1.4% decline from the same metric for the third quarter, and that is why our revenue declined. The fact that our ending AUM was asked higher than our average AUM should give us a head start as we go into 2012. During the quarter, we recruited 146 new advisors, bringing our total for the year to 529. As we launched GWP in the US advisor market, we expect that we will appeal to larger advisors then have normally consumed our offering and we are refocusing our sales force to recruit these larger advisors.

For 2012, we will concentrate on three main areas. First, we are laser-focused on the rollout of GWP. Our beta test of 85 small advisors is going well, and we are on track to roll out GWP to five large advisors at the end of the second quarter. Additional advisors should be added during the fourth quarter, and a more aggressive rollout should commence in 2013. Second, we will continue to focus on new advisor recruiting, although we may try to focus a little more on quality rather than quantity. Third, we will continue to try to improve the net cash flow of both our new and existing advisors. Our $436 million in net positive cash flow in 2011 represents our first net positive year since 2007.

In summary, fourth-quarter results reflect some carryover from steep third-quarter market declines, but the fourth-quarter rally and our net positive cash flow helps us going into 2012. In addition, and perhaps more importantly, the arrival of GWP improves our long-term prospects. I now welcome any questions you may have.

(Operator Instructions). Our first question comes from Robert Lee of KBW. Your line is open.

Quick question, understanding that the average AUM declined a percent or so in the quarter and contributed to the lower revenue but, it also looks like that be rate spend kind of training down that the last couple of quarters. Is there something else going on there? I don't know if it is a money fund fee waivers perhaps? Something with the mix -- or anything that could point you?

I think there is a lot of noise in there. I think it's a little bit, as asset balances decline, there's less scale within the funds. So, our waivers go up to subsidize the funds a little bit, and I think there's a little bit there's a slight shift more into liquidity type products. Right now, very low fees.

Sure. Okay. And you could maybe go through -- I know as a lot of the focus on expense initiatives in Joe's segment, but obviously, GWP affects your business. Is there any, and I apologize if I missed this in your prepared remarks but are there any specific initiatives that you're taking on the expense front? Or is it really just kind of, should we be thinking the goal is to kind of hold expenses flat into the year? And I don't know if there's anything in particular you could point to.

I think, Rob, I'm focused on expenses all the time, we have sort of a constant initiative to keep expenses in line in the advisor segment, so I think it's more of the same for us.

Fair enough. That's it, thank you very much.

Thank you. The next question comes from Jeff Hopson of Stifel Nicolaus. Your line is open.

Okay, thanks, Wayne. In terms of the cash flows, so maybe some of those flows went into money market liquidity, anything within the quarter or even early in January, any favorable trends there, would you say? Or, is it still pretty cautious out there?

I think we have seen sequential improvement throughout 2011, and so far, that sequential improvement has a continued into 2012.

Okay and in terms of your recruiting, would you expect any positive effect on the numbers, either assets coming over or new clients? Because GWP is close to happening, I guess?

The answer is yes. I don't know if we'll be putting new advisors on the platform, in 2012, because in 2012, our focus to converting over some of our bigger come existing clients that are quite frankly very excited about the platform. But, the vision that we can demonstrate with GWP will help us with recruiting.

Okay. Yes, that was my point, I guess. Okay, great. Thanks.

We're talking to everybody about it.

Okay, thanks.

Thank you. The next question comes from Glenn Greene of Oppenheimer. Your line is open.

Wayne, just one quick question. So is $430 million fund flows for the year, what was both the mix? How much of that was new versus existing advisors? Directionally?

Existing advisors was slightly negative. So the net cash flow was all from new.

Okay. That's all I had. Thanks.

Thank you. And the next question is from Chris Donat of Sandler O'Neill.

Just another question on the recruitment. I know you said you're targeting everyone, but is there a profile you are looking for in terms of what -- is it someone who is not using a, particularly on the smaller advisor side, someone who is not using a competitor, or are you looking to target any other platform providers out there to pick off? Or what's like the first priority for your sales force?

It's pretty evenly split. Probably about one third of the new advisors come over from a competitor, maybe another third of them are people that are trying to strengthen their fee-based business, maybe they're primarily a commission base, on a commission-based model today, or a they come over from being primarily an insurance producer, and then maybe another third are people that we say, they just hit the growth wall. So, they are in one of these other business models and they just can't grow because they spend so much time on infrastructure items that they're not selling servicing if existing clients of them are willing to outsource the investment process and the operations to us.

Okay that's helpful, thank you.

Thank you. And I'm showing no other questions at this time.

Thank you, Wayne. Our next segment is institutional investor segment, and I'm going to turn it over to Ed Loughlin to discuss the segment. Ed?

Thanks, Al. Good Afternoon, everyone. This past year was a trying one for institutional investors. Global equity markets were mostly lower, the global bond market saw extreme volatility. When all was said and done, the globally diversified 60/40 US institutional investor experienced a 1.5% annual rate of return, while a UK investor realized a negative a 1.5% rate of return. This disappointing and volatile capital market performance negatively impacted segment results.

While 2011 annual revenues of $210 million increased 2% compared to 2010, fourth-quarter revenues declined by 4% compared to the third quarter. As you recall, capital markets declined significantly during the third quarter. As a proxy, a 60/40 globally-diversified institutional portfolio declined negative 9.7% in the third quarter. During the fourth quarter, that same 60/40 institutional portfolio posted a positive 7.3% rate of return. The fourth-quarter rally did not eliminate the shortfall from the third quarter, and for revenue recognition purposes, institutional investors' fees are calculated based on average of the prior four month-end balances. September, being both the end of the third quarter for fee calculations, and the beginning of the fourth quarter fee calculation, so the negative 5.5% capital market performance for the month of September impacts both quarter's revenues.

Profits of $103 million increased for the year, but decreased for the quarter to $23 million, following the same pattern as revenues. Increased sales and incentive compensation expense for the fourth quarter negatively impacted quarterly profits. Margins dipped to 46.5% for the quarter, and ended the year a little above 49%. Asset balances increased $727 million during the year, totaling $53.4 billion at year-end. Client losses during the quarter caused net new client fundings to be negative $487 million. This was the result of several clients being acquired by larger organizations, and also an interest in low-cost passive strategies in the UK market in particular.

Revenue impact for the quarter and the year from the losses was minimal, due to the late timing in the quarter. The full impact will be reflected in 2012. Our backlog of committed but unfunded assets at year-end was $1.1 billion. Sales activity for the quarter increased, with $1.8 billion in new client sales for the quarter, and totaling $4.9 billion for the year. During the quarter, we were successful in selling a larger investor, and it gives us optimism that larger investors are returning to the market.

Our focus for 2012 is in three areas. We continue to build the pipeline to win new client relationships, and place increased emphasis on larger investors. We continue to provide clients with value-added advice and client service. And lastly, we continue to differentiate our solutions and investment strategies and are sensitive to clients obtaining their business goals. This concludes my remarks, I'm happy to entertain any questions you may have.

(Operator Instructions). The first question is from Robert Lee, of KBW. Your line is open.

Maybe if we could -- I'd like to possibly drill down a little bit more into kind of investor decision-making? You talked about getting a larger client in the quarter but, in general, are you -- I would assume, given the environment, but maybe not, are you seeing just kind of the decision-making kind of going back to being pretty elongated in terms of getting people that you think may be near the end of the pipeline, getting them through it tax and any sense, I know it's early going, but any sense that if it has been tighter, could it loosen up in the early part of this year?

Again, I think we're optimistic. I think that we saw sales from year-to-year increase almost $1 billion from 2010 to 2011 and so, the fact that institutional investors are out there, I think I would say they are more serious about a mandate to their decision-making. That's what gives us the optimism, because the difference between kind of a good sales year and a great sales year is getting a couple of large investors. And so, that's why the emphasis is key for this year.

Okay, great. Maybe just one follow-up. You talk about the focus in 2012 on larger investors, and I'm just curious from a strategic perspective, the thought process behind kind of going upmarket a little bit. I mean particularly when you do hear about more -- in some cases traditional asset managers and others who are kind of trying to play in the fiduciary space and presumably its many of them are kind of targeting some of the up market, whether it is Black Rock or other. Just trying to get a feel for why kind of move up market a little bit from traditionally where you had I guess your best success in kind of a little bit lower -- not lower end, but kind of lower asset size?

Yes, well I wouldn't describe it that we're moving up market, because we have larger investors. We have successfully closed larger investors, and we have a fair amount of them. We probably have more at than some of those names that you mentioned, because we've been in the business longer. I think really what we're trying to do is to really get the larger investors really to make some commitments to make decisions. And, that's why we're focused in the time on it.

Okay.

So it's not a new segment for us, we have been successful with them in the past.

All right, great. Thanks, Ed.

(Operator Instructions). Our next question is from Jeff Hopson of Stifel Nicolaus. Your line is open.

Okay, great. Thanks. Ed, so, you lost some business, doesn't sound like a huge amount due to passive but you also are signing new business. So, any particular trends would you say as far as the interplay of the opportunity versus the challenge? Anything that's changed in your favor or not?

Well, I think that the conditions that we talked about as far as the reasons for losses, I think that has the potential to continue. There will be corporate transactions, and we may be on the right side or the wrong side of that. Passive investment, as you know, is kind of a cyclical thing. The fact that many active managers just across the board have been struggling. Passive might look attractive to some investors. So, that's more cyclical. But generally, we will continue to see the overall sales be a lot greater than certainly the losses.

Okay. Thanks.

Thank you. I am showing no other questions at this time.

Thank you, Ed. Our final segment today is investment managers. I'm going to turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone. Fourth quarter of 2011 revenues for the segment totaled $44.5 million, which was $1.9 million or 4.5% higher than our revenues for the fourth quarter of 2010. On a quarterly basis, this is $1.1 million or 2.4% lower than the third quarter of 2011. This quarter-over-quarter decrease in revenue was primarily due to asset balance declines in the quarter, as well as one-time revenue associated with conversion fees that were received in the third quarter, and not repeated in the fourth quarter. Our quarterly profit for this segment of $15.2 million was approximately $200,000 or 1.1% higher than our profit for the fourth quarter of 2010. On a quarter-over-quarter basis this was approximately $1 million, or 5.8% lower than our profit for the third quarter of 2011. Quarter-over-quarter decrease in profit was largely due to our decrease in our revenue for the quarter, combined with an increase in incentive and sales compensation expense.

Third-party asset balances at the end of the fourth quarter of 2011 were $221.2 billion, approximately $2.4 billion or 1.1% lower, as compared to our asset balances at the end of the third quarter of 2011. The decrease in assets was primarily due to net negative cash flows of $4.46 billion, offset by market appreciation of $2 billion. The net negative cash flows were comprised mainly in specific stable value and money market funds. The full impact of these lower asset balances as well as specific hedge fund redemptions that were larger at the end of this year, will be realized in the first quarter. During the fourth quarter of 2011, we had net new business sales events totaling $8 million in annualized revenue. In addition, we recontracted existing clients with annualized revenue totaling $6.8 million. For the year, our new business sales event totaled approximately $27 million, and our total recontracts for the year were $34.6 million in annualized revenue. This represents a solid year in revenue in recontracting events and marked good progress of our growth plan.

In looking back at 2011, as I mentioned at the beginning of the year, it turned out to be much like 2010, a year marked with market volatility and lengthened decision-making. Through this, we were successful in continuing to capitalize on our growth opportunities. We remain focused on our primary strategies for growth, which were building out our global opportunity, growth with existing clients and an expansion of our solutions.

As we turn to 2012, our focus for continued growth will be 4-fold. First, continue to sell aggressively into our target markets. Second, to install our current backlog of sold but unfunded deals over the next 12 to 18 months, third, to continue to expand our wallet share with our current clients, and fourth, to continue to innovate and expand our solutions to keep us ahead of the market. So in summary, although this market continues to provide headwinds for growth, I remain encouraged of our long-term growth strategy and opportunity. We continue to see demand for outsourcing solutions in the market, and we feel very competitively-positioned to continue to execute on this opportunity. Thank you for your time, and I will now turn it over to any questions you have.

(Operator Instructions). Our first question is from Glenn Greene of Oppenheimer. Your line is open.

First question maybe you could update us on sort of the size of the pipeline? I know you've given us some metrics, maybe mid-year?

Yes. Pipeline is a relatively the same. There has been movement, some wins, some of the deals have gone kind of on hold, but we have added some new deals, so it's relatively around the same, I'd say slightly higher, at $110 million.

$110 million. Okay, you sort of referenced a term that I had that revenue, sold but unfunded deals?

Yes.

Is there way to sort of think or quantify that?

Well, you probably heard, you remember me mentioning, and I think I mentioned it back in the investor presentation, back in June. This is basically backlog concept.

Yes.

So deals we sold that basically either due to a new product launching or conversion being delayed, they have not funded yet.

Yes.

What I would say right now is that number, while we have movement, as we continue to sell, and in this market, where the timeframes have lengthened, as I mentioned, and again, I think that's the new norm. If we are doing our job, we should have a healthy backlog. But, part of our job is to get that backlog in. I'd say the backlog right now is hovering around right where was up the middle of the year, around $30 million.

$30 million, okay.

If you remember, Glenn, we walked through kind of a timeframe of from us prospecting to selling, and how that has elongated over time, and I think if you look at it now, we're still in kind of when we win the deal, we're still kind of in anywhere from a 6 to as much is an 18 month time period before we see the full impact of those assets.

Okay, perfect. Thanks, Steve.

Thank you, and I'm showing other questions at this time. Pardon me, I do have a question from Robert Lee of KBW. Your line is open.

I'm just curious, I mean, one of your I guess hedge fund admin competitors out there in the UK kind of I guess announced they pretty much put themselves up or sale, I guess quick

Yes.

And I guess a couple of questions there. Number one, although you guys have not historically been interested in acquisitions, it certainly is a decent-sized competitor in your space, I mean, just your general thoughts around if that is something you could at least kind of look at, or a little more broadly, what do you think that actually says about kind of the alternative manager admin space when one of your competitors kind of puts themselves up for sale?

Well, I think a couple of things. One, generally about the industry. So, there's a number of our competitors up for sale, or that have been, whether officially or unofficially, shopping themselves. I think that's kind of a sign of the times. I do believe, as these markets are a little bit harder, I do believe quality and there is a flight to quality, I think you will see more consolidation in the industry. Our view, as you know, we have not typically been an acquisitive company, especially in this area. But, I believe I mentioned this on our last call, third quarter, we are not interested in looking at business just for the sake of buying business. If there is a business that could help us expand our market reach or get us into new markets or complement the solutions we have, we would be interested in looking at that.

Great. Thanks so much.

Thank you, and I'm showing no further questions.

Thank you, Steve. Now, I'd like to turn it over to Kathy Heilig, to give you a few Company-wide statistics. Kathy?

Thanks, Al. Good afternoon everyone. I have some additional corporate information about this quarter. Fourth-quarter cash flows from operations were $81.4 million or $0.46 per share. Year-to-date cash flows from operations $257 million, or $1.40 per share. The fourth-quarter free cash flow, $49.4 million, or $0.28 per share and that does reflect debt repayments of $20 million. The year-to-date free cash flow, $108.4 million, or $0.59 per share, and that reflects debt repayments of $95 million.

The fourth-quarter capital expenditures, excluding capitalized software, were $1.5 million. Year-to-date capital expenditures, excluding capitalized software, were $12.3 million, and next year, 2012, we would expect capital expenditures, excluding capitalized software, to be between $8 million to $10 million. The tax rate for the fourth quarter was 34.7%, which is a little higher than the 33.8% tax rate in the third quarter. The 2011 tax rate does reflect both the reinstatement of the R&D tax credit as well as some other tax planning opportunities that we had. For next year, we would expect the tax rate to increase between 36% to 37%, and some of that, and that would depend on the outcome of whether the R&D tax credit gets extended once again. The accounts payable balance at December 31 was $2 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 the obligation to publicly update or correct any statements herein, as a result of future development. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. And now at this time, please feel free to ask any other questions that you might have.

(Operator Instructions). Our first question comes from Chris Donat of Sandler O'Neill.

Hi, I think this question might be best for Dennis. Just looking at the consolidated income state and the expense line for subadvisory distribution and other asset management costs, is that where the -- that roughly $1 million Canadian expense appeared?

Yes.

Okay. And then, we expect it again in the first quarter, something similar in magnitude and then to drop off? Hopefully?

Well, it would go way up.

Yes, got it. That's it for me.

I do want to comment on the question earlier about stock buyback and, fourth quarter was, as Al gave you the numbers on buyback, a little bit too much, a little bit lighter than third quarter. And, as we've said in the past, our use of capital really is done a couple ways. First, certainly reinvest in our business where we think it makes sense and secondly to return it to shareholders through either dividend payment and stock buyback. And we've had a little bit, certainly 2011 was a healthier buyback year than 2010. As we look forward, again our view of the strength of SEI's business is the strength of our balance sheet, our ability to generate a strong, positive cash flow and assuming things continue to improve, particularly external market and our own success, buyback will continue to be a part of our capital utilization. And, I guess we will take any final questions you all have.

Thank you, our next question in queue is from Glenn Greene of Oppenheimer. Your line is open.

Yes, these are questions for Dennis. First one, just the LSV revenue for the quarter?

I ought to just give you this right up front because I think this is one of your standard questions here.

It is.

The revenue for the quarter was $68 million.

Okay. And then, a couple of the segments sort of highlighted higher incentive accruals. Was there anything unusual, or just the normal end-of-the-year incentive accruals and maybe just frame how the incentive accruals look in aggregate?

Yes, at the end of the year, I call it true-up for the year. Total accrual? I don't understand that last part,

I'm just trying to understand if it was sort of a normal incentive accrual type quarter? Or anything out of the norm?

I would say the aggregate increase in expense in the fourth quarter related to the true-up of incentive compensation was about $2 million.

In aggregate?

In aggregate. But I think, hopefully as we move into this year, the incentive comp will be comparable to fourth-quarter rate versus kind of back in that $2 million now.

I just want to make sure I have got my math right. If I think about the annual -- the sales of annual recurring revenue, by my math, I just want to validate this, roughly $44 million to $45 million on a full-year basis across all the segments?

If you can hold on a second I will -- it was about $41 million.

$41 million?

Yes give or take, and another $10.5 million of one-time.

Care to hazard a reasonable expectation for 2012?

We're optimistic.

I thought you might say that. All right, thanks a lot.

Thank you. And the next question is from Leonard DeProspo with Janney. Your line is open.

This question is just for Joe, a quick one. With the increased focus on the US this year, is that going to -- when you say you're going to be focusing there, does that mean additional headcount or are you shifting resources from UK into the US?

It's a combination of things. So, we are actively recruiting additional sales people into the market. We're trying to fund our a lot of that by shifting where we're spending money today, and we're also leveraging some of the experience that we built in the UK and those sales guys are helping us here in the US.

Great, thank you.

Thank you, at the moment I have no other questions in queue. (Operator Instructions). I am showing no further questions from the phone lines.

Okay, thank you. So, everybody, as we look ahead to 2012, we expect short-term revenue and profit growth to remain difficult to achieve. Consequently, during 2012, we will concentrate our efforts on maintaining highly satisfied clients, growing new business events and controlling costs. So, I am bullish about our long-term, longer-term business opportunity and the positive impact we will make on the market that we serve. And our focus on long-term growth in revenues and profits is unwavering.

So thank you very much for your attention today, but before you go, our annual Investor Day will be held on May 30 this year, with a dinner the night before, May 29. So, please save the date and invitations will be sent out in advance. So, have a good evening, good afternoon and evening. Thank you again.

Ladies and gentlemen, this conference will be available for replay after 4.00 PM Eastern time today through April 25, 2012. You may access the AT&T Teleconference Replay System at any time by dialing 1-800-475-6701 and entering the access code 234129. International participants please dial 320-365-3844. Those numbers again are 1-800-475-6701, and 320-365-3844. Access code 234129. This does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.