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Executives

Al West - Chairman and CEO

Joe Ujobai - EVP

Wayne Withrow - EVP

Edward Loughlin - EVP

Steve Meyer - EVP

Dennis McGonigle - CFO

Kathy Heilig - CAO, Controller

Analysts

Thomas McCrohan - Janney Capital Markets

Jeffrey Hopson - Stifel Nicolaus

Robert Lee - Keefe, Bruyette & Woods

Glenn Greene - Oppenheimer & Co

SEI Investments Company (SEIC) Q2 2011 Earnings Call July 21, 2011 2:00 PM ET

Operator

Good day ladies and gentlemen and welcome to the SEI 2011 second quarter earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference Mr. Al West, Chairman and CEO. Mr. West you may begin.

Al West

Thank you. Good afternoon and welcome. All of our segment leaders are on the call today as well as Dennis McGonigle, SEI’s CFO and Kathy Heilig, SEI’s Controller.

I am going to start by recapping second quarter 2011. I will then turn it over to each of the business segment leaders to comment on the results of their segments and then Dennis will then cover couple of items including LSV. Finally Kathy Heilig will provide you with some important companywide statistics. Now as usual we will field questions at the end of this report. So let me get started with the second quarter of 2011.

Second quarter earnings were essentially flat from earnings a year ago on revenue increase of 4%. Diluted earnings per share for the second quarter of $0.29 compares to $0.28 reported the second quarter of 2010. Now our earnings for the quarter were affected by a loss attributable to the SIVs on our balance sheet which netted to a decrease to earnings of approximately $1.9 million. Now this compares to a $3.6 million increase to earnings due to SIVs in the second quarter of 2010. This represents approximately $0.02 per share swing.

Also during the second quarter of 2011, our non-cash asset balances under management experienced little growth. SEIC’s assets under management grew by $1.9 billion during the quarter while LSVs assets under management fell by $1.8 billion. Market volatility continues to be a challenge. Now in addition during the second quarter, we repurchased just under 2.5 million shares of stock at an average price of just over $22 per share. That translates to over $55 million of stock repurchases during the quarter.

New recurring revenue sales are still slower than we would like. The Investment Manager segment continued to experience strong sales activity and the Institutional Investor segment has a solid quarter, signed in a number of institutional accounts.

In addition, the Advisor segment added a number of new advisors to its role while continuing the trend of improving net cash flows. Banking had a particularly slow sales quarter primarily due to timing of prospect decisions. They have a number of prospects in the later stages of their sales process and are working hard to close them in the third quarter. Joe will provide pipeline update and each of the segment will address their sales events.

We are continuing our investment in GWP and its operational infrastructure so critical to our futures. During the first quarter we capitalized approximately $9.9 million of the Global Wealth Platform development and amortized approximately $6.8 million of previously capitalized development. While we are increasingly encouraged with our long-term opportunities with the rollout GWP, we are disappointed with the profitability of our bank segment.

Expenses related to the development of GWP and the build out of the infrastructure needed to successfully deliver GWP have been growing and will continue to trend up over the next few quarters. This has put an acute pressure on the banking segment’s profitability in the short run. Now we are confident that sales followed by revenues will begin to improve the banking segment’s proper picture in not too distant future. Nonetheless, we are placing an increased emphasis on controlling costs. We will make sure the resources we are expanding are aimed at the highest priority initiatives.

We are launching GWP in the US this year and next. To accommodate the launch, as I mentioned last quarter we are concentrating on building the functionality and the infrastructure necessary to process US banks and advisors. We have recently delivered an extremely large release with major US functionality and with infrastructure. And the next three releases contain a large number of US enhancements. These releases will complete the base line functionality for the US as well as significantly enhance the UK functionality and improve our operational efficiencies and scale. Now, we are firm in our belief that these investments will result in new sources of revenues and profits and will help our client succeed.

That just concludes my remarks and I am going to turn it over to Joe Ujobai to discuss our private banking segment. Joe?

Joe Ujobai

Thanks Al. Today I would like to continue our discussion from the June Investor Conference by giving you an update on our activity and a review of the current financials for the Private Banking segment. Revenue for the quarter increased slightly to almost $88 million while expenses increased by $3.9 million compared to the previous quarter. Net sales events for the quarter were nominal. Let me start by saying I am not satisfied with the results of the banking segment.

As you all know we have made a significant investment and incurred significant expense in building and delivering our global wealth services solution. The timing of realized revenues has been slower than I expected. The continuing increase in expense to build for the US market and sell, operate and deliver in the UK market have significantly dampened our profits. This is not satisfactory and although I am positively encouraged by our sales activity and the acceptance of our solution, we need to focus more acutely on profitability.

Increased GWS related costs are driven by a number of factors. Although capitalization rates have generally declined, increased realized software development expenses have grown based on additional amortization as we release new functionality and the 100% expense recognition of maintenance and enhancements to our current services. More recently expenses have grown as we begin to sell, implement, and grow our GWS business. Expenses in this category include sales and marketing, implementation and production expenses related to increased technology and operating costs.

These expenses haven’t yet reached the baseline for scale. We have always discussed not letting the long-term opportunity get sidetracked by short-term decisions and this will continue to be our framework. I have initiated an evaluation of every area of cost and have expectations of making progress on this front, over the next few quarters to improve our profit picture next year. Ultimately our profit picture won’t improve by growing revenue, meaning implementing new clients, converting assets to GWP. As an update and on a positive note today we are announcing the signing of our eleventh GWP client in the UK, Amber Financial Investments. This is not included in the corporate sales results mentioned by Al, but it is a third quarter event.

Amber is the name of an entity that delivers services to the Perspective Financial Group and the Paradigm Group. Perspective is a leading national IWA and Paradigm is an IFA support service business what we call platform. GWS will be the central administration infrastructure. With the signing of Amber, we add our six national IWA and third platform client furthering our sales strategy to grow market share in both the national IWA segment and to expand it to additional segments.

Amber is a business transition client, meaning we will open the front for business later this year and convert assets to GWP overtime. We now have seven business transition clients that we expect to substantially grow over the coming years as the firms transfer their assets from multiple key platforms to GWP as their centralized infrastructure.

Successful asset transition of these business transition clients will drive revenue growth. During the second quarter our transition management programs resulted in net new cash flow to GWP of £380 million or approximately $600 million. This does not include some expected run off of Edward Jones advisory business. In addition to the sale of Amber we have made progress on our GWS pipeline including a number of opportunities to the later stage of the sales process.

These prospects are heavily weighted towards the private client investment manager segment, their infrastructure clients and will have a traditional day one asset conversion, resulting in more immediate revenue recognition once installed. Our pipeline progress supports our segment expansion strategy discussed at the June conference.

I would also like to take a moment to discuss other areas of banking beyond GWS. Our largest, I would say, our longest term business is investment processing in the U.S. which is enabled by TRUST 3000 includes our liquidity or money market and transaction or brokerage solutions. Our business in the U.S. is solid and has been enhanced by our prudent commitment to the industry with market interest and our strategy and investments in Global Wealth Services.

During the quarter, we closed two community bank clients, continuing our success in this segment. Similar to the UK GWS business, we have additional community banks in the later stage of the sales process.

Our U.S. investment processing pipeline is the largest that’s been in recent years and includes both community and regional banks. Much of our current U.S. pipeline is TRUST 3000 oriented. But our prospects are covered by the eventual path to GWT. We are also executing our U.S. GWS sales strategy and have increased our marketing efforts focused on segments with our national bank clients.

During the quarter, we re-contracted three community banks and are on track for a good overall re-contract year. Our other business is asset management distribution, which consists primarily of bank distribution partners outside of the U.S.

During the quarter, we continued positive progress in our asset management business. Average quarterly assets grew 14% to $16.2 billion, with 420 million in net new cash flow and 1.6 billion in market appreciation and currency movement.

In conclusion, we know current financial results are disappointing and that our short to mid-term challenges will not easily go away. Despite this I am encouraged by our strong pipeline and our ability to help our clients significantly grow their businesses. We will tighten up our expense control without impeding our long-term opportunity.

At this point, I would like to take any questions. Is the operator there to take questions?

Question-And-Answer Session

Operator

(Operator Instructions) And our first question comes from Tom McCrohan. Your line is open.

Thomas McCrohan - Janney Capital Markets

Hey Joe, you are noticeably more negative on the margin profile, understandably so given the investments but from a few weeks ago at the Analyst Day you characterized the margin trends as bumpy for the rest of the year and if I am hearing it correctly it sounds like the amount of spending that’s recognized for the balance of the year is probably going to trend higher from this quarter. So I am wondering if you still believe the margin trends are bumpy or if it is going to continue to trend lower?

Joe Ujobai

You know it’s not easy to predict quarter-by-quarter, but I would suggest that we will continue to invest it GWP and you know margins could certainly go lower.

Thomas McCrohan - Janney Capital Markets

Could margins go below, can that – can you have negative margins in that business, Joe?

Joe Ujobai

Well, you look at the profit we are at about a $1.6 million for the quarter, so that’s not a lot of money, yes, they could go negative.

Thomas McCrohan - Janney Capital Markets

Okay. And did anything change from a few weeks ago at the Analyst Day that makes you a little bit more cautious in the margin trends because you certainly didn’t articulate that is crisply back in early June?

Joe Ujobai

We’re executing against our strategy, growing our business in the UK and entering into the U.S. The best way for us to fix the margin, the profitability in this business is to continue to sell more clients, convert them as quickly as possible and continue to transition assets to GWP.

We will continue to invest in this business especially to deliver in the segments where we are today. We will do our absolute best to control expenses as I said earlier and as your earlier question, things could go down slightly, but we will do our best to control that.

Thomas McCrohan - Janney Capital Markets

Okay. And as a follow-up I know, is there anything seasonal there where you had a sequential decline in assets this quarter and if my model is correct it looks like a seasonal – not seasonal, sorry sequential decline last year’s second quarter, so if there is anything about the second quarter that’s…

Joe Ujobai

Dennis is going to talk about Al’s view when he’ll give an update, so can we held that question for shortly?

Operator

And our next question comes from Jeff Hopson. Your line is open.

Jeffrey Hopson - Stifel Nicolaus

Okay, thanks. So I guess I am still not clear on how much of the costs are accelerated upfront to get the platform ready for the U.S. with the assumption that some of those would fall off once those enhancements have been made versus ongoing costs?

Joe Ujobai

I talked sort of about two buckets of costs earlier. One is really what we initially got started on that, the development of the software, the technology to build out GWP and as I mentioned some of those costs were going up as we move from capitalization towards amortization and as we have to expense 100% of those costs when we enhance or provide maintenance to the software.

So we are realizing additional expenses there, but I think we’ve been building this platform for a while so we have a fair amount of understanding over our efficiencies as we deliver additional services from a software development cost. What has been a little bit last predictable for us is how we actually bring GWP to the market so the build out of sales and marketing teams, the build out of additional operations capabilities, the cost to implement, so we have really scaled those cost or those parts of our business yet and so that’s where it’s a little less predictable for us and that’s where some of the cost tend to be increasing at somewhat higher rates.

Jeffrey Hopson - Stifel Nicolaus

Okay. So as you kind of look at this whole issue and try to revaluate so to speak any initial thoughts on kind of where is it cutting or controlling would come?

Joe Ujobai

Yeah we – there is a lot of – we have a lot of ideas and things we have been working on for sometime now so as we develop the platform you know we have people at work say on core infrastructure and maybe those people and some of those resources shift to help us sell and install. So we make some sort of natural progression and we are getting a lot of more efficient, we continue to get more efficient at designing the services. So we try to bring to – find savings in those areas.

And again as we’re really traditional software, we also are much more straight-through and structure control more operating cost. So we have a number of key initiatives, you know there is a perfect example, when we first, when we first launched GWP we had a lot of we called applications support, so training people on the platform if there were stability issues, controlling those things. We have a lot of those people doing that now because the platform has matured and is increasingly more stable. So there are areas of us that we can wrap down as the platform matures and as the operation matures and the operation scales.

Operator

And our next question comes from Robert Lee. Your line is open.

Robert Lee - Keefe, Bruyette & Woods

I apologize if you mentioned this before but with Amber Investments’ understanding that that’s you know business transition client, but can you size what the potential is for that at least in terms of you know assets that could migrate over; at least where they are now?

Joe Ujobai

Yeah, we don’t typically size an individual client, but the firms that make up Amber paradigm and perspective are well known entities in the UK, IFA space, both sort of a national consolidation, consolidating IFA or IWA as we call it as well as the platform, its got a very strong and well known management team. And so we believe that this opportunity is a good one for us and some of the bigger names we have announced in the last couple of years.

Robert Lee - Keefe, Bruyette & Woods

Okay. And you know just a quick question, I mean if I – when I look at your revenue breakdown in the private banks business, I mean the asset management and related fees have grown pretty much inline with your AUM and certainly the revenue pressure has been from mainly I guess an investment process thing. I am assuming that’s mainly partially or at least flows through some of the precious scene on re-contracting in the last couple of years kind of flowing through that line item and maybe if you’d update us on some of the re-contracting that you are seeing now from a price point perspective.

Joe Ujobai

Sure so in general the revenue around investment processing, certainly took some hits as we lost some accounts that we talked about on calls for some time now. We are starting to win some business that we talked about, Bloomington Trust. Obviously that revenue hasn’t flowed through yet. We’ve had some progress on the community banks space. We do experience traditionally some net downs as I said before when we re-contract clients. Those net downs has generally improved in the last year itself. But we do experience some net downs, there is heavy competitive pressure from a couple of the US providers that drives some of the net down pressure. I think the investment in GWP has certainly helped us improve that but it certainly happens. From time to time clients do decide not to re-contract with us and that does happen in sort of a normal form of course of business but in general I feel good about the re-contracting rate and it has definitely improved over the past couple of years.

Robert Lee - Keefe, Bruyette & Woods

Great and thank you for taking my question.

Joe Ujobai

I mean the real key from a processing stand point would be to, as I said earlier is to get these GWS clients sold, get them converted and the business transition action clients really get those assets transitioned from the multiple custodians and we are putting a lot of very strong effort on that activity.

Operator

And our next question comes from the line of Glenn Greene. Your line is open.

Glenn Greene - Oppenheimer & Co

Just a question on the late stage PCIM prospects, and a little bit more color there. How many prospects are we talking about, maybe an aggregate you can talk about, you have some size that you maybe looking at, assuming you were to win them?

Joe Ujobai

At the investor conference, you talked about the pipeline that had about $45 million in it and I think about a third of that was private client investment managers. So, we are looking really hard to try to close a fair amounts of that in the coming months and quarters. I think that the continued development of some of the portfolio management capabilities of GWP, which has been an important part of our recent releases and the next couple of releases has made our solution a much more viable and interesting solution, our opportunity for that space.

So, I think all these trends we talked to you for a while and they have been impressed by what we built, as what we’ve told them we were going to built. They view it as a real competitive advantage to have an integrated solution and so that’s why we are making progress in that segment in the market.

And again things like IWA segment, now we started out with a couple of fairly well known, I would say, sort of industry leaders and we have been able to grow to bigger clients and prospects in that space. We are doing similar things in this segment. We are entering that segment with our increased capabilities. We are seeing some early adopters and market leaders in that segment. They are very impressed by what we built and I think like we did have done in the national IWA space, we have a terrific opportunity to take, to win some significant business there and the key is to get a couple of early adopters that like it, get them installed, get them successful and then we will start to see more progress in that segment.

Glenn Greene - Oppenheimer & Co

And what's sort of the major impediment are to you over the goal line on a couple of these?

Joe Ujobai

It’s really finalizing the commercial terms and negotiating the contract.

Glenn Greene - Oppenheimer & Co

Okay. So you are sort of at the very, very late stage, it sounds like?

Joe Ujobai

Yeah. We are definitely at the late stage with some of the firms we talked about in the pipeline at the investor conference.

Glenn Greene - Oppenheimer & Co

And would you say your pipeline is still roughly $45 million in aggregate?

Joe Ujobai

Yeah, I would say so, yeah its just a few things to add. We are really looking to increase that. So we've increased activity around lead generation, we are continuing to evolve and grow the sales force and the support associated with the sales force and again we've said all along this is a momentum business. So I think the more we win and the more successful we are at helping our clients grow the business, the more we are going to win. So I firmly believe that and I think what we are sort of alluding to is that we talked about at the investor conference we are scaling in the IWA, National IWA space getting some more clients there but entering these other segments and that's what we are doing right now.

Glenn Greene - Oppenheimer & Co

Just, but there are some, you had a lot of questions already but the $3.9 million sort of Q to Q expense ramp, obviously if you annualize that sort of 16 million or so, that's pretty significant, I mean is this a predominantly consulting relating, sort of leveraging sort of your offshore development team or maybe a little bit more color on the magnitude of the increase there?

Joe Ujobai

You know it comes across the board as we continue to build out the service or the solution, Global Wealth Services. So as I mentioned earlier we are amortizing more because we are putting more software into actual use, we can’t capitalize as much because we don’t want to capitalize as much, because of enhancements we continue to make to the services but a lot of it also comes from build out of the operation as we try to get back to scale. So I think we will get the operation to scale. It’s hard to predict exactly when that will happen but we will get the operation to scale and so we won't continue to add at the same rate from an operation perspective.

We’re also launching this with clients in the US and so we’re building out the infrastructure in the US around technology and software to do that. So it will, it has grown. We will do our best to control those costs as I said. We do believe we can more effective in the build-out and the roll-out of this and it’s certainly important to us. And I think we’ve done that as we rolled out the platform, you will see it because sometimes we spend less money in one area and more money in other area. And this thing sort of is rolled out to the early stage lifecycle a bit, but we hear you and we understand that’s a concern, it’s a concern of ours and we will do our best to try to manage that going forward, and things like that going forward.

Operator

And I am showing no questions at this time, you may continue.

Al West

Thanks Joe. Over to Wayne Withrow to cover Investment Advisor segment. Wayne?

Wayne Withrow

Thanks Al. During the second quarter, we continued to improve our profits, margins and cash flow. Asset on the management was $31.6 billion at June 30, 2011, a slight improvement from March 31st. Our AUM improvement was driven by $160 million in net positive cash flow. This positive cash flow is a continuation of the momentum we began to build during the first quarter and brings our total net flows for the year to almost $200 million.

Gross cash received for quarter was just over [1.4 billion]. Revenues for the quarter were $49.8 million an almost $1.7 million improvement in the first quarter. Contributing to the increase within an increase in our average assets under management and improvement in the basis point earned on assets and the fact that the second quarter include one more days in the first quarter.

Margins also continued to improve coming in at 44.3% as compared to 43.8% for the first quarter. Throughout 2010 to 2011, we have made a good concerted effort to work more closely with the broker-dealer community and I feel those effort have positively contributed to our cash flow and new advisor recruiting. With respect to this latter point we’ve recruited 127 new advisors in the second quarter a 10% improvement from the first quarter.

During this timeframe we’ve also worked hard to prepare for the US release of the Global Wealth Platform and are on target for out third quarter beta roll out. While this roll out will not be a revenue generator it will allow us to gain valuable technical and operational experience in operating the US version of the platform in preparation for a more generalized roll out in 2012. We are now actively talking our client about the platform and response to date has been very positive.

In summary, our revenues profits and cash flow improved definitely during the second quarter and moment continues to build. I am excited about the upcoming release of our Global Wealth Platform in the US and look forward to have a beta roll out beginning in the third quarter. I welcome any questions you may have. Operator?

Question-And-Answer Session

Operator

(Operator Instructions). And we have a question coming from Jeff Hopson, your line is open.

Jeff Hopson - Stifel Nicolaus

Hi Wayne, so the improvement in cash flows I suspect is being held by the new advisors that you brought on, any change in client engagement based upon choppy markets?

Wayne Withrow

Not. I think your observation is exactly right. I think that the client behavior remains about the same. Clients are a little more positive than they have been even though the market are choppy but a lot of the improvement was seen impact those driven by new advisors.

Operator

(Operator Instructions). I am showing no questions at this time, you may continue.

Al West

Our next segment is the Institutional Investor segment and I am going to turn it to Edward Loughlin to discuss this segment. Ed?:

Edward Loughlin

Thanks Al. Good afternoon everyone. I am going to start with the financials for the second quarter compared to the first quarter and then discuss sales activity. Second quarter revenue is approaching $55 million increased 3% compared to the first quarter of 2011. Capital market appreciation and annual client performance fees recognized during the quarter contributed to this increase. Profits of $27 million increased 4% for the quarter compared to last quarter. Margins increased slightly to 50% during the quarter. This compares favorably to the first quarter.

Revenue volatility will cause margins to fluctuate. Quarter end asset balances of $55 billion were flat to the previous quarter and net new client assets funded during the quarter were $50 million, a backlog of committed but unfunded assets at quarter end was $900 million. New client sales closed during the second quarter, the $1.1 billion and that totals $2.4 billion in new sales year-to-date through June. Institutional prospects continue to show a willingness to discuss outsourcing and thereby support a healthy pipeline floors.

As we’ve discussed at the June Investor Meeting over the last several years we have seen new entrants to the outsourcing market. So one of the leaders for the expected sales cycle is just to show our investors need to perform due diligence by some additional providers. SEI has a long track record serving clients as a fiduciary manager, we consistently invested to enhance our solution. Most recently SEI was recognized at the European Pension’s Award as the Fiduciary firm of the year. We are well positioned to differentiate our offering from the competition and we are optimistic about the growth opportunities for the segment. Thank you very much and I am happy to entertain any questions that you may have.

Question-And-Answer Session

Operator

(Operator Instructions). (Operator Instructions)

And I am showing no questions at this time, you may continue.

Al West

Thank you. Final segment today. Well before Dennis is investment managers. I am going to turn it over to as I sign out today, well before dinner there are investor managers and I am going to turn it over to Steve Meyer to discuss this segment.

Steve Meyer

Thanks Al. Good afternoon everyone. I will briefly cover the financial results for the segment, for the second quarter of 2011, including our new sales and update on the market environment.

For the second quarter of 2011, revenues for the segment totaled $44.5 million, which was $1 million or 2.3% higher in the first quarter 2011. Also on a year-over-year basis, this represents an increase of $5 million or 12.7% increase over our revenues for the second quarter of 2010.

Our quarterly profit for the segment of $15.2 million was approximately $300,000 or 1.8% lower than our profit for the first quarter of 2011. There was also $1.3 million or 9.6% higher than our profit for the second quarter of 2010.

Quarter-over-quarter decrease in profit was largely due to an increase on our investment and sales expense for the quarter. As I mentioned at the Investor Day in June, we will continue to invest in our solutions as we feel this will help differentiate us in the long term and provide for continued growth.

Third party asset balances at the end of the second quarter of 2011 were $247.9 billion, approximately 1.9 billion or 1% higher as compared to our asset balances at the end of the first quarter of 2011. The increase in assets was primarily due to net positive cash flows.

During the second quarter of 2011, we have another strong sales quarter with net new business sales events totaling $8 million in annualize revenue. Although these sales will take time to matriculate in to our quarterly revenue streams, they are represent a strong acceptance of our solutions and a continued positive growth sign.

In addition to our new sales, we also had a strong client recontracting quarter with approximately $15 million of annualized revenue being recontracted with existing clients.

Overall, we continue to experience the same market environment as we have discussed over the last several quarters in market marked with cautious focus and prolonged decision timeframes. We also continue to see a market need for our solutions and we continue to win new business. Accordingly, we believe there continues to be a strong opportunity for growth.

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

Question-And-Answer Session

Operator

(Operator Instructions) And our first question comes from Jeff Hopson. Your line is open.

Jeffrey Hopson - Stifel Nicolaus

Your expenses jumped up, which is a little bit unusual for your line, I am just curious if there's kind of sales and marketing or what the reason was there?

Steve Meyer

Its two-fold, there were sales and market expense because the sales were higher than in first quarter so obviously the sales competition expense would go up. And two, as I said on the Investor Day and I have said for the past couple of quarters we are going to continue to invest in this business because we believe that's right for the long term.

So I really on a quarter-over-quarter basis when you know pay gauge to the expense although we view it as important, I would really look at more on an annual rolling basis and you know you will certainly see us continue to invest in the business and our solutions especially to the point that we feel it helps differentiate us and drive long-term sustainable growth.

Operator

And our next question comes from Robert Lee. Your line is open.

Robert Lee - Keefe, Bruyette & Woods

Just a quick question on the kind of the complexion of pipeline, may be just update a little bit on the complexion of alternative versus traditional and I guess the domestic versus global?

Steve Meyer

So the pipeline remains very large and it’s about the same level that I have mentioned at the Investor Conference. I would say right now it’s probably split 50-50 alternative versus traditional products, so it’s a good mix and blend among the tradition alternative but also among our solutions within each. And I would say it’s having a stronger and stronger component from global certainly not the lion share but within the 20% range of our pipelines globally.

Operator

And our next question comes from Glenn Greene. Your line is open.

Glenn Greene - Oppenheimer & Co

Hi Steve just a quick one. I just want to be clear the net fundings in the quarter were essentially flat. Is that the way we would think about it?

Stephen Meyer

No, well we did have fundings and a little bit of market appreciation but you won’t see the fundings we had in the asset number because they came from our separately managed accounts business. So our accounts went up, so it was more of an account function than an asset, but we did have some fundings, but you know it’s certainly not as large as in the past quarters.

Operator

(Operator Instructions) And I am showing no question at this time, you may continue.

Al West

Thank you, Steve. I will now ask Dennis to discuss got LSV and the investments in new business segment. Dennis?

Dennis McGonigle

Thanks Al. Good afternoon everyone. I’ll cover the second quarter results for the investments in the new business segment. I’ll make a few brief comments on LSV and our SIV Holdings.

During the second quarter of 2011, the investments in new business segment continued its focus on direct marketing and research activities, directed towards the ultra-high net worth investors. During the quarter, the investments in new business segment incurred a loss of $2 million on par with the loss during the first quarter of 2011. There has been no significant change in this segment and we expect losses in this segment to continue in this range for the remainder of the year.

Regarding LSV, our ownership in LSV is approximately 41%. LSV contributed approximately 29.5 million in income to SEI during the quarter. This compares to approximately 28.9 million in the first quarter of 2011. This increase is due primarily to increased revenues in LSV from higher average asset balances however ending asset balance has shrank approximately 1.8 billion during the quarter primarily from net client out loose. Negative cash flows were a result of the net impact of client rebalancing and lost clients offset by some new client activity.

During the quarter, we generated losses totaling $1.9 million from the SIV security we hold on our balance sheet. This loss was primarily the result of a decrease in the mark-to-market value of the collateral underlying structure offset by cash distributions we received during the quarter. As of today our SIV Holding carries a mark-to-market value of approximately $60 million.

Finally, we made a $20 million payment on our outstanding debt. Our current outstanding debt is $40 million, this is down from original debt level of $254 million just about two years ago which we incurred to deal with the SIV issue.

Operator, I’ll now take any questions the audience may have.

Question-And-Answer Session

Operator

(Operator Instructions) And a question comes from the Tom McCrohan. Your line is open.

Thomas McCrohan - Janney Capital Markets

Hey Dennis, just reiterating the question I asked earlier, was there any seasonal impact related to LSV regarding the sequential decline, because you have the same sequential decline last year’s second quarter? Thanks.

Dennis McGonigle

No. There is really no seasonality to the asset was (inaudible). The thing I think there is a little bit of quarter-to-quarter differences in terms of some run rate they might generate on performance fees just because of the timing of client contracts and they had a pretty good quarter performance fees, but you know that I wouldn’t call that seasonality as much as its just contract timing.

Thomas McCrohan - Janney Capital Markets

And related to LSV but kind of an accounting question, for every dollar that you spent on GWP, can you just ballpark what percentage you are capitalizing versus what you are recognizing and how that compared to say this time last year, because it seems as far as the higher expense is related due to lack of inability to capitalize. So if you put in those terms that might be easier to comprehend?

Dennis McGonigle

Yeah, roughly the capitalization on GWP development in the second quarter was probably around 50% and I would said, this time last year, I don’t know if the numbers are in front of me but it was probably somewhere around 65% or so percent and in the hay-day of development, it was more in the 75% to 80% range. So there is definitely more expense related to technology development being borne by the businesses particularly in banking and you know now that occurred few years ago. And really that’s because as we got more experience in the market, so we do enhancements to the platform, versus significant new functionality builds like we are doing for the U.S. market entry. Those activities, whether its trust re-builds or whether it GWP or any other technology, we are doing development work for re-expenses through.

Operator

(Operator Instructions) And thus showing no questions at this time you may continue.

Al West

Thank you Dennis and now I would like to turn it over to Kathy, who will now like to give you few company-wide statistics. Kathy?

Kathy Heilig

Thanks Al. Good afternoon everyone. I have some additional corporate information about this quarter. The second quarter cash flow from operations was 36.8 million or $0.20 per share. Year-to-date, cash flow from operations is 92.8 million or $0.50 per share. In the second quarter free cash flow was 7.2 million or $0.04 per share and this does reflect a debt repayment of 20 million this quarter. And year-to-date free cash flow is 10.1 million or $0.05 per share and that reflects year-to-date debt repayments of 55 million.

The second quarter capital expenditures, excluding capitalized software were 1.9 million and year-to-date capital expenditures of 7 million.

And the capital expenditures excluding the capitalized software are expected to be approximately $7 million for the remainder of 2011.

The tax rate for the second quarter was 34.7%. This was the reduction from prior quarter and was due to a special software development production credit where deduction in that regard, cost deduction really for producing the Global Wealth platform software. Now I will point out that the second quarter rate does represent a catch up of this deduction for the past couple of years. We would expect a similar rate, a tax rate in the third quarter and then in the fourth quarter, we would expect our tax rate to be about 36%. For this tax deduction does have an element of one-time in it for part of this year and then in ongoing kind of permanent benefit whereas we used to say in the past that our tax rate will be around 37%, we would now expect to going forward to annually be about 36%. The account payable balance at June 30th was 2.9 million.

We also would like to remind you that many of our comments are forward-looking statements and are based upon assumption that involve risk 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 here in 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.

And now please feel free to ask any other questions that you may have.

Question-And-Answer Session

Operator

Ladies and gentlemen, (Operator Instructions) And I am showing no questions at this time. You may continue.

Al West

Thank you, Kathy. So ladies and gentleman, as a large shareholder, although I am at this point in our current level of profitability particularly in the banking segment. I am bullish about the long term business opportunity and the positive impact we will make on the markets we serve. We have always prided ourselves on being innovators in our markets and that's no more true than today. Our focus is unwavering. We must launch as quickly as possible in the US for both banking and larger segments. Now this will continue to put pressure on expenses in the short run but give us what we need to grow revenues and change our profit picture.

At the same time we are working to control expenses and maximize the effects in use of our resources. Now looking back we have made tremendous progress. We have proven the concept of (inaudible) wealth management system. We have successful operated a clients in the UK for a few years and we are confident we are ready to capture a larger market share in the UK and into the US with a highly successful offering to prospecting clients and we do know that this will lead to a sustainable growth and EPS. Thank you very much. One more chance to ask any questions, might come to you.

Operator

(Operator Instructions) I am showing no questions at this time.

Al West

Great, thank you. Thank you everybody for your attendance, have a great afternoon.

Operator

Ladies and gentlemen this conference call will be available for replay after July 21, 2011 at 4:30 p.m. through October 21, 2011 at 11:59 p.m. You may access the AT&T teleconference replay system at that time by dialing 1-800-475-6701 and entering the access code 210438. International participants may dial 320-365-3844. Those numbers again are 1-800-475-6401 and 320-365-3844, access code 210438. This does concludes your conference call for today. Thank you for using the AT&T Executive Teleconference. You may disconnect at this time.

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