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SEI Investments Company (NASDAQ:SEIC)

Q3 2011 Earnings Call

October 19, 2011 2:00 pm ET

Executives

Alfred P. West, Jr. – Chairman and Chief Executive Officer

Joseph P. Ujobai – Executive Vice President, Private Banks

Wayne M. Withrow – Executive Vice President, SEI Advisor Network

Edward D. Loughlin – Executive Vice President, Institutional Group

Stephen G. Meyer – Executive Vice President, Head of Investment Manager Services

Dennis J. McGonigle – Chief Financial Officer

Kathy C. Heilig – Chief Accounting Officer and Controller

Analysts

Glenn Greene – Oppenheimer & Co.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Christopher R. Donat – Sandler O'Neill

Robert Lee – Keefe, Bruyette & Woods, Inc.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Operator

Ladies and gentlemen, thank you for standing by and welcome to the SEI Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded today Wednesday, October 19, 2011.

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

Alfred P. West, Jr.

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

Now I’m going to start by recapping third quarter 2011. I’ll then turn it over to each one of the business segment leaders to comment on the results of their segments, and Dennis will then cover couple of items including LSV. And 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 start with the third quarter of 2011.

Third quarter earnings were 13% lower than earnings a year ago on revenue increase of 6%. Diluted earnings per share for the third quarter of $0.27 compares to $0.30 reported for the third quarter of 2010 a drop of 10%, 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 $800,000. Now this compares to an $8.7 million increase to earnings due to SIVs in the third quarter of 2010. Now this swing represents approximately $0.03 per share.

Also during the third quarter of 2011, our non-cash asset balances under management experienced significant losses. SEI’s assets under management fell by $19.5 billion during the quarter including a $11.5 billion drop in LSVs assets under management.

And as you will hear later this drop in assets under management is market driven. In addition during the third quarter, we repurchased just under $3.7 million shares of stock at an average price of just over $17 per share. Now that translates over $63 million of stock repurchases during the quarter.

New recurring revenue sales are still slow. For the Investment Managers and Institutional Investors segments good sales quarters, both segments are experiencing delays in conversion.

In addition the Advisor segment added a number of new advisors to its roles but did suffer from the loss of assets under management due to market volatility. Banking had a decent sales quarter and they have a number of prospects in the later stage of the sales process and are working hard to close them in the fourth quarter and each of the segment will address their sales events.

And we are continuing our investment in GWP and its operational infrastructure so critical to our future.

Now during the first quarter, we capitalized approximately $10 million of the Global Wealth Platform development and amortized approximately $6.6 million of previously capitalized development.

Now while we are increasingly encouraged with our long-term opportunities with the rollout of GWP, we are working hard to improve the profitability of our bank segment. Coming out of the second quarter, we initiated cost reduction and control programs, focused mostly on banking. We believe this will pay dividends in 2012.

We just recently passed an important GWP milestone. We have successfully converted 85 of our smaller advisor clients to GWP making them the first U.S. users of GWP. This is very important for us, because we are getting to exercise basic U.S. functionality as well as test many of our processes in our low volume operation. This will be helpful when larger and more complex advisors are added next year.

To accommodate the launch into the U.S. as I mentioned in the past, we are concentrating on building the functionality and infrastructure necessary to process U.S. banks and advisors.

The next three releases contain a large number of U.S. enhancements and these releases will complete the baseline functionality for the U.S. also significantly enhances the U.K. functionality and improve our operational efficiencies and scale.

I continue to be encouraged by the feedback I received from clients and prospects in all of our markets. Although we hear growing [pains] in certain areas, our investments in infrastructure and new service offerings have enhanced our competitive strength across all of our business lines. We certainly expect to capitalize on this even in these challenging times. And our solution strength coupled with our financial strength positioned us well for long-term growth.

Now this concludes my remarks. And I’m going to turn it over to Joe Ujobai to discuss our Private Banking segment. Joe?

Joseph P. Ujobai

Great, thank you, Al. Today, I would like to give you an update on our activity and a view of the current financials for the Private Banking segment. Revenue for the quarter was essentially flat to the previous quarter at $88 million. Revenue was negatively impacted by market depreciation. Expenses declined slightly as we’re implementing the tightened spending controls, mentioned buyouts.

As I said last quarter, I’m not satisfied with the results in the banking segment, and I'm focusing more acutely on revenue growth and profitability. Expenses were generally down in all categories versus last quarter with the exception of some brokerage related transaction expense and the sales commission. We continue to work our expense management program, which will drive more impact in the coming quarters. Ultimately, our profit picture will improve by growing revenue in selling and implementing new clients, and converting assets to GWP.

Turning to new business, net investment processing sales events for the quarter were $8.3 million of which approximately half of it is recurring revenue. In the UK, we signed three new GWS deals. In July, I mentioned our 11th GWP client, Amber Financial Investments.

Amber is a business transition client; we will open the firm for business later this year, convert assets to GWP over time.

Today, I’m announcing two additional clients. Both are in the infrastructure business model and will convert the majority of their asset at once. The first is, absolute return investment advisors or ARIA. ARIA is a fast-growing boutique wealth manager. The second is Northern Bank, a wholly owned subsidiary of Danske Bank, Danske, and a large retail bank in Northern Ireland.

During the quarter, we also converted two previously announced clients, Premier Asset Management, institutional wealth. The trend in our asset transition activity remains positive and is improving. GWP asset transition programs resulted in net new cash flow of approximately $650 million. The pipeline continues to grow as we replaced closed deals with new opportunities and expand to new segments such as the private client investment managers market.

We now have 13 signed GWP clients in the UK, seven are business transition and six are infrastructure clients. Of the 13 clients, eight firms are national IWAs, three firms are private client investment managers and two are banks. All of our clients have strong plans to grow their businesses using GWS as the centralized operating model.

Turning to the US, during the quarter we closed (inaudible) bank clients continuing our success in this segment. Our US investment processing pipeline (inaudible) has been in recent years and includes community, regional and national banks. Our prospects are encouraged by the eventual path to GWP.

As we execute against our US GWS launch strategy, we have increased our marketing efforts with larger non-bank wealth managers. During the quarter, we re-contracted nine clients and are on track for good overall re-contract year.

Finally, as we review our asset management distribution business, net cash flows into SEI asset management programs slowed considerably due to the capital market conditions. Ending asset balances dropped to $15.4 billion largely due to market depreciation.

In conclusion, I'm strongly encouraged by our efforts to number one, manage expenses, number two, closed new sales events and convert clients; and finally grow our pipeline. We're building a strong foundation, which will ultimately lead to significant growth and improved profitability in this segment.

Any questions?

Question-and-Answer Session

Operator

(Operator Instructions) And we have a question coming from the line of Glenn Greene with Oppenheimer. Please go ahead, sir.

Glenn Greene – Oppenheimer & Co.

Thanks. Hey, Joe.

Joseph P. Ujobai

Hi, Glenn

Glenn Greene – Oppenheimer & Co.

Yeah, just the first question, may be if you can give us a little bit of color on the two new (inaudible) wins that you just announced total magnitude asset size are potential?

Joseph P. Ujobai

Okay, we don't specifically report individuals asset types by firm or asset types by firm. Both firms are what we would call infrastructure clients, meaning that we would convert all their assets at once post, a conversion project. I would say that both firms get us little bit further into this private client space; private client investment manager space or the Northern is bank. And they would be sort of on the small to medium size for us as far as additional assets.

Glenn Greene – Oppenheimer & Co.

Okay. And then maybe you could just update us on sort of the, how you sort of thinking about the size of the pipeline maybe relative to some of the comments you made back in June at the Investor event? Where does the pipeline stand at this point?

Joseph P. Ujobai

So, I think as we've said for a long time, this is a momentum business, and the more success we have the more we will have. So the pipelines we've obviously closed a few things in the pipeline since then, the three deals that I mentioned today. Pipeline is actually growing. It's trending again more towards traditional conversion clients and we're certainly starting to see larger firms into the pipeline.

Glenn Greene – Oppenheimer & Co.

And then just finally the cost efforts that Al alluded to maybe you could help us size that and give us some sense for the savings potential in 2012?

Joseph P. Ujobai

Yeah. We're still in the middle of that, so it’s hard for me to give you number, but we’re really looking at everything. So we're certainly looking at how we scale up GWP operations, how we continue to invest probably continue to invest then as we build out the platform sort of beyond the core processing capabilities into the discretionary ability, capabilities, and certainly looking at the US and (inaudible) business to find additional efficiencies. So our goal really is to manage expenses, do not drive a lot of expense increase and to get as efficient as possible as we start to bring in more revenue. But we're really in the middle of that project now.

Glenn Greene – Oppenheimer & Co.

Okay. Thanks Joe.

Operator

Thank you. Our next question comes from the line of Jeff Hopson with Stifel Nicolaus. Please go ahead.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay, thanks. Excuse me, Joe in regard to the pipeline, I know, you’ve swept a few out, but in terms of the season, seasoning I guess of the pipeline, are there ones moving through the pipelines such that there’s still a few later ends I guess. And so what are the prospects over the next six months to continue to bring things out?

Joseph P. Ujobai

I think we're making good progress on the pipeline, and things are coming through, we're getting better at the sales process, we’re getting better at the contracting process. So I think we will, according to short period of time, so I wouldn’t say we definitively have an absolute trend at every quarter we’d announce a few more. But I feel good about the pipeline and I think we’re making good progress at bringing the other prospects through. So I’m positive about it.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay. And those prospects in the pipeline, are they showing any hesitancy because of the market environment. And then, in the US anything new on kind of timing of conversion of the first clients and the readiness of the product?

Joseph P. Ujobai

So to your first question; of course people are busy given the market conditions, but I don’t see that impacting, I don’t see that significantly impacting decisions with the current pipeline. If anything, I think firms really have to need to move to a more variable pricing model than a fixed pricing model which are solution offers. So people are obviously quite busy and certainly the uncertainty doesn’t get people a lot of comfort and they are distracted by that. But in general we’re pretty solidly with the prospects.

On the US side; important step within the US was, has been getting the initial advisors up, and Wayne will talk a bit about that in a few minutes, that’s important for us because we are now starting to implement some of this US functionality and we’re looking to bring community bank or so out towards the end of next year and that haven’t really changed at this point.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead.

Christopher R. Donat – Sandler O'Neill

Hi, good afternoon everyone. Joe, you just said that Wayne is going to talk about the 85 clients. I won’t ask that one but just my one question for you is, can you remind us what the sort of the payment process is for your sales people, as you bring on new clients what they just how they earn the money and over what time period that is just bring on new clients?

Joseph P. Ujobai

Sure. We'd like to pay the sales person when the deal gets closed and/or installed and then have them move on to the next opportunity. And so we pay and met some processing sales person, a percentage of either the first year revenue or we pay them a percentage of the average contracted revenue. So if it's a business transition client, we pay them a percentage of an average of the five-year regular length of the contacted revenue and average of it and again if it’s a transition client we pay them percentage of the assets that convert and we book the expense now when we announce the sale.

Christopher R. Donat – Sandler O'Neill

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Robert Lee with KBW. Please go ahead.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Thanks. Good afternoon, Joe.

Joseph P. Ujobai

Hi, Rob

Robert Lee – Keefe, Bruyette & Woods, Inc.

Quick question on the non-clients re-contracted. Could you just update us on a little bit of the pricing experience on re-contracting, I guess I’m still working on the assumption maybe it's everything being equal a little bit of give up on re-contracting in someway say perform? And then I have a follow-up question.

Joseph P. Ujobai

Okay, so we talked a couple times over the past year, so that despite the fact that there is a fair amount of pressure in the market around with some of the other truck systems that are out there. We have managed to lower our – to improve our re-contracting rates in sort of the 15% net down to single-digit net down that continued this quarter. So there is some net down we usually have been able to lower that net down amount by providing additional services to the clients. So that hasn’t changed, it continues to be sort of single digit and but there is fair amount of pressure out there in the marketplace.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Okay, great. And just want to make sure when how we’ll think of the new sales activity, I mean you mentioned that net sales equals kind of about $8.3 million kind of revenue run rate maybe 50% of those recurring. Is that – are you including the three new wins in the quarter in the community banks that kind of all bundled within that?

Joseph P. Ujobai

Yeah. It would be the three GWP wins plus the two community bank wins.

Robert Lee – Keefe, Bruyette & Woods, Inc.

All right. Okay. That’s it. Thank you.

Operator

Thank you. And our next question comes from the line of Tom McCrohan with Janney Montgomery Scott. Please go ahead.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Hi everyone. Hey Joe, can you compare and contrast the sales process at GWP here in the US relative to the UK and the success you have there, in terms of how maybe the product is being positioned, the value proposition, the firms that you’re targeting here in the US relative to the UK and maybe any other differences that you think of worth talking about maybe how the product is being priced here in US relative to the UK? Thanks.

Joseph P. Ujobai

Okay. So we're beginning to talk a lot more actively in the US, I think we learned in the UK that our solution isn’t just for banks, but there are a lot of variety of different wealth managers in the marketplace that would benefit our solutions not just banks or bank trust departments. And so in the UK, you saw us expand to large independent advisory firms and private client managers that we talked about on the success we’ve had. So as we approach the US market, we are approaching sort of much broader set of opportunities not only banks and bank trust departments that may have competitively installed trust accounting systems but also the advisory groups with inside of banks and another wealth management activities that banks may have and then we’ve certainly gone beyond banks as we’ve started initially in the US to call on a large advisors that may be looking for a investment processing only decision other than a bundled decision or even – we’re even talking to some mid-sized broker dealers and other wealth managers as they move their business to sort of a commission based business to more of a fee based business. So as I’ve said several times, we think there is a lot of interesting opportunity out there.

We have capitalized our business model around asset based fees as being the primary driver of revenue which provides a more variable pricing model for the market place which again I think in uncertain and turbulent time seems to have – there seems to be (inaudible) that there. So – I would say we’re seeing a lot of opportunity in the US, we’re still in early days because we have been installed a large firm in the US here, we obviously made a great progress with some smaller advisors here in the US but I would say it’s – it’s an interesting opportunity and we’re continuing to add more sales resource to call in the US market place.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Is it I know it’s still in the early inning, there is a possible you’ve got to breakdown your GWP pipeline between US, non-US and how you expect that breakdown to kind of track overtime?

Joseph P. Ujobai

It’s pretty – it’s probably too soon to do that. I think we need some few more quarters in the US to be able to make some of those calculations. But clearly the US is a bigger market, you know, it’s probably 10 times bigger than the UK market, so I would expect overtime as we deliver this to have and we’re in the market selling this to have a very, very robust pipeline in the US, and there is more competition in the US than there is in the UK, but I would expect the US to be a pretty significant opportunity for us.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Thanks, Joe.

Operator

Thank you. And there are no further questions in the queue. Please go ahead.

Alfred P. West, Jr.

Thanks, Joe and our next segment is Investment Advisors. Wayne Withrow will cover this segment. Wayne?

Wayne M. Withrow

Thanks, Al. During the third quarter, we continue to see positive net cash flows, however we experienced a slow down in growth during December as uncertainties crept into the financial markets around the world.

Assets under management were $28.8 billion at September 30th and 8.7% decline from June 30th. This entire decline was due to the global decrease in market values. While we did receive over $100 million in net positive cash flow for the quarter, we experienced slightly negative flows in September. Gross cash receipts for the quarter were just under $1.2 billion.

Revenues for the quarter were $46.8 million and almost $3 million declined in the second quarter. Almost all of this decrease was due to declining market values. After driving an increase in margins for the past four quarters, we saw a decline in margins during the third quarter as we were unable to reduce expenses in an amount corresponding with the rapid decline in market valuations.

On the new business front we signed 141 new advisors during the quarter up from the 127 we signed in the second quarter. Our pipeline of new advisors remains strong and approximately 10% of our total assets under management are from advisors we have signed during the past 2.5 years.

The number of new advisors signed is good news, but the better news maybe that while markets were choppy and investors cautious during the quarter, we did not see redemption rates like we saw in 2008 to 2009. In addition, we remain on track with our long-term strategic initiatives the most significant of which is the US rollout of the global wealth platform. As Al mentioned, we converted 85 beta clients on to the platform near the end of the third quarter and are now gaining experience involving at the new platform and operating it in the US.

These beta clients are very small SEI mutual fund only clients. As we move on to larger and more complex advisors, market acceptance have been strong and five of our largest advisors have signed letters of intent to be an early adopter of the platform at the end of the second quarter of 2012. Shortly, after the first step of five large advisors, we will slowly ramp up the rollout in the last half of 2012, with a more aggressive rollout beginning in 2013.

In summary, the rate of market declines put pressure on our third quarter revenue on profits, but the segment remains well positioned for growth. I welcome any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the Jeff Hop with Stifel Nicolaus. Please go ahead.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Hey there, Wayne. I’m sorry if I missed this. I was distracted for a minute. But the expenses of that drifted up what would be responsible for that and then two, as you go and try to attract newer advisors how was the new platform kind of playing into those discussions?

Wayne M. Withrow

Okay. The first question on expenses, it's not as if our expenses went up significantly, they were up maybe 1%, they were pretty consistent with the prior quarters. It's just that we were unable to cut them at a pace consistent with the rapid market declines. And what was on your question here, Jeff?

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

In terms of recruiting new advisors, whether the new platform is part of what you're discussing with them about?

Wayne M. Withrow

Yeah, at this point we're talking to them about the new platform generally, but we really haven't – won't be selling our existing value proposition to advisors. So our existing value proposition is still wrong. I would expect the Global Wealth Platform would just accelerate that process. And we will be introducing that, and we hope to introduce that into the new advisor conversations probably at the beginning of this – the end of this year.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay. And back on the expenses, so from here is the current rate, the run rate or isn't it any ability to moderate that downward I guess?

Wayne M. Withrow

I think it's sort of my job to deliver the bottom line spot. We’ll do what we have to do to maintain profitability of the segment.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Glenn Greene with Oppenheimer. Please go ahead.

Glenn Greene – Oppenheimer & Co.

All right, hey, Wayne, just one quick question. Sorry, Wayne, one quick question. Is there an incremental or a change in pricing for these advisors as they are given the ability to leverage the GWP platform, or is that it’s just sort of a part and parcel of the service you're providing?

Wayne M. Withrow

I think the answer to the question is, right now, we are primarily focused on mutual fund assets. And with GWP, we're going to blown this out beyond the open and mutual fund asset to include more asset types, so for SEI funds the pricing does not change.

Glenn Greene – Oppenheimer & Co.

Okay.

Wayne M. Withrow

To the extent, they consolidate outside assets on to the platform, which is our goal, there will be incremental pricing twice there.

Glenn Greene – Oppenheimer & Co.

Okay. Okay, all right got it. Thanks.

Wayne M. Withrow

And that’s basis points

Glenn Greene – Oppenheimer & Co.

Got it, is that similar pricing to your core assets or is it sort of, I’m just trying to get a sense to the basis point fees on average assets go up, or is it just the incremental assets that you’re trying to get because of the capabilities of GWP?

Wayne M. Withrow

Yeah, I think it’s more like a processing basis point fee and which is generally less than an asset management basis point fees, it’s similar to what we’re in bank did.

Glenn Greene – Oppenheimer & Co.

Okay, all right, thanks.

Operator

Thank you. Our next question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead.

Christopher R. Donat – Sandler O'Neill

Hi Wayne, just another one on GWP here. Is this a sort of thing that we will soon see on your, the asset balances page that’s attached to your earnings release, a line for client assets under management for the investment advisors. Is that something that we’ll see in the next quarter or two or is it really like a year or so away?

Wayne M. Withrow

Yeah, I guess probably when I talked about what the accounting rules (inaudible) differ, but I would say that for this perspective, I don’t see this how we will be doing anything like that in the near term, I mean that’s probably a 2013 item.

Christopher R. Donat – Sandler O'Neill

Okay, so really for 2012 GWP for advisors is targeting current customers, current clients and maybe 2013 really when the new ones might start coming on and people who would bring more assets under administration for you?

Wayne M. Withrow

I think that’s right, so in 2012 we’re targeting visiting clients. Although we will try to have their consolidate more assets in the platform, which maybe some small incremental revenue but not significant. It’s 2013 when you should expect to see larger newer clients come on with all types of assets.

Christopher R. Donat – Sandler O'Neill

Got it. Okay, thank you.

Operator

Thank you. There is no further questions in the queue. Please continue with your presentation.

Alfred P. West, Jr.

Thank you, Wayne. Our next segment is the Institutional Investors segment, and I’ll turn it over to Ed Loughlin to discuss this segment. Ed?

Edward D. Loughlin

Al, thanks. Good afternoon everyone. As I come to the last several quarters, I’m going to focus the majority of my remarks on the financial results and also the progress we’ve made during the third quarter compared with the second quarter of 2011.

Third quarter revenues of $52 million declined by 5% compared with the second quarter primarily due to market depreciation. Operating profits approaching $27 million represented a $600,000 decline compared to the second quarter.

Quarterly margins of 51% increased by a 120 basis points during the period. Margins will continue to be sensitive to the small changes in revenue and expenses. Quarter and asset balances of $50 billion reflect a $4.5 million decrease compared to the second quarter of 2011 and net new client funding during the third quarter was $419 million. The backlog of committed, but unfunded sales was $504 million at the end of the quarter and client signings to the third quarter were $754 million and they totaled $3.1 billion year-to-date through September.

New client sales continue to be an important element for growth in the Institutional segment. Sales activity and new client wins continue to improve. The market activities still subdued. We enjoy a healthy pipeline of globally diversified prospects and we remain optimistic as economic conditions improve, prospective clients will again return to a more normal decision making timeline and sales results should increase again.

SEI has served as a fiduciary manager for the last 15 years responsible for actively managing client assets and liabilities and we’re well positioned to capitalize on the growing outsourcing trends in this segment.

This concludes my prepared remarks and I’m happy to entertain any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) And we have a question coming from the line of Tom McCrohan with Janney Montgomery Scott. Please go ahead.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Hi Ed. Is there anything on the horizon relating to pension accounting changes that if, that could be a catalyst for additional outsourcing plans to SEI?

Edward D. Loughlin

There is no accounting or regulatory change now, Tom.

Thomas C. McCrohan – Janney Montgomery Scott LLC

Okay, that’s all I had.

Edward D. Loughlin

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Chris Donat with Sandler O’Neill. Please go ahead.

Christopher R. Donat – Sandler O'Neill

Hey, Ed. Just quickly, revenues were down 5%, which is still managed to increase your margin, was there anything interesting on the expense side that you were either able to control or you just had a good quarter?

Edward D. Loughlin

Well, the expenses were down somewhat. One of the things that we do have is that we have direct cost and so part of that would be the fees that we pay to the money manages. So, as our asset balances decline that declines. And that is again for our offshore funds.

Christopher R. Donat – Sandler O'Neill

Okay.

Edward D. Loughlin

That’s something that, is managed but is managed kind of mechanically much rather that’d be going up.

Christopher R. Donat – Sandler O'Neill

Right. But nevertheless you were able to expand the margin in a contracting time.

Edward D. Loughlin

Very sensitive, it is very sensitive small changes…

Operator

Thank you. And there are no further lines in queue, so please go ahead with your presentation.

Alfred P. West, Jr.

Thanks Ed. Our final segment today is Investment Managers and I’m going to turn it over to Steve Meyer to discuss this segment.

Stephen G. Meyer

Thanks Al. Good afternoon everyone, I will briefly cover the financial results of the segments for the third quarter of 2011, including our new sales and market environment. For the third quarter of 2011 revenues for the segment totaled $45.6 million, which was $1.1 million or 2.5% higher than the second quarter of 2011. Also in a year-over-year basis this represents an increase of $5 million or 12.4% increase, overall revenues for the third quarter of 2010.

Our quarterly profit for the segment of $16.2 million was approximately $1 million or 6.6% higher than our profit for the second quarter of 2011. It was also $1.3 million or 9.4% higher than our profit for the third quarter of 2010. The quarter-over-quarter increase in profit was largely due to an increase in our revenue for the quarter. The majority of this was one-time revenues associated with conversion fees.

Third-party asset balances at the end of the third quarter of 2011 were $233.7 billion approximately, $14.2 billion or 5.7% lower as compared to our asset balances at the end of the second quarter of 2011. Decrease in assets was primarily due to net negative cash flows of $7.6 billion, which was primarily outflows in some of our client’s lower fees traditional products such as (inaudible) as well as some redemption activity in some alternative products. This was coupled with market depreciation of $6.6 billion. The market depreciation reflects the volatile market we’ve experienced in the third quarter of 2011 and only reflect the portion of that volatility since most of the impact, stimulate in the quarter.

During the third quarter of 2011, we had net new business sales events totaling $4.1 million in annualized revenue. Although, these sales events were less than previous quarters they do reflect the prolonged decision cycles this uncertain market is producing.

From a market perspective unfortunately not much has improved from the previous quarter. Again we have all experienced a volatile and challenging markets (inaudible) decision delays. However, despite the market, as the headwinds we continue to see a strong activity in our segments and continue to grow our pipeline.

As I’ve said before, we believe this market volatility and its related impact, it’s a new normal. And I believe our job is to continue to battle through and execute on the opportunities that comes along with this new market norm. While this market produces challengers, I'm still in the mindset that we have continued opportunity to grow our business through long-term and I feel we are well positioned from a business, a solution and an execution standpoint.

Thank you for your time and I’ll now turn it over for any questions you have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we have a question coming from the line of Robert Lee with KBW. Please go ahead sir.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Thank you. Good afternoon, Steve.

Stephen G. Meyer

Hi.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Can you maybe just give us a quick update of I think you talked about for just kind of on the pricing environment, as you go in and look at new clients or look at re-contracting?

Stephen G. Meyer

Sure. I'd say, as we’ve talked before, the pricing environment definitely, there’s more pressure on the pricing side these days. Competitors largely, they're going to grow in this environment, they either grow by capability or by reducing prices. So I think overall, prices are under pressure; I still think we're able to battle them with premium services and offering more services. But I do think that’s something that will continue especially in this new market environment and something that we’ll have to deal with going forward.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Okay. And maybe just one quick follow-up, I mean you guys clearly have never been acquisition oriented (inaudible) reason. And yes, you look at what's going on in Europe and I believe there is probably a reasonable number of European institutions that you compete against to maybe in a position that they have to shift some assets, I mean how would you think or do you think about any incremental opportunities to use capital in that way to help grow and expand your business outside the US.

Stephen G. Meyer

As you pointed out, it’s never been our preferred method and we would certainly not do it just for the sake of growth, but what I would say is, as the market changes and we look to expand our business into new markets, that is something that we wouldn’t blindly say no to, it’s something that we would consider, again have to be the right opportunity obviously our company has somewhat of a different culture and we think a very good culture. And the last thing we want to do is spend our time to focus internally. But I think for the right opportunity to expand our business going into new market that’s something that we would consider.

Robert Lee – Keefe, Bruyette & Woods, Inc.

Great. Thanks for taking my questions.

Operator

(Operator Instructions) And there are no further questions. I'll turn it back to management.

Alfred P. West, Jr.

Thank you, Steve. I’ll now ask Dennis to discuss LSV and the investments in new business segments.

Dennis J. McGonigle

Thanks, Al. Good afternoon, everyone. I will cover the third quarter results for the investments in new business segment and make a few brief comments on LSV asset management.

During the third quarter, the investments in new business segment continued its focus on direct marketing and research activities towards the ultra high network investor and the further build out of services. During the quarter, the investments in new business segment incurred a loss of $1.5 million, which compares to a $2 million loss during the second 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, we continue to earn approximately 41% of LSV in the third quarter. LSV contributed approximately $23.9 million of income to SEI during the quarter. This compares to approximately $29.5 million in the second quarter of 2011. The decrease is due primarily to decreased revenues at LSV from lower asset balances.

Asset balances shrank approximately $11.5 billion during the quarter, primarily from market depreciation. LSV generated net positive cash flow during the quarter of approximately $500 million from both existing and new clients.

During the quarter, we generated a loss $800,000 from our SIV security that we hold on our balance sheet. This loss was primarily a result of the decrease in the mark to market value of the collateral underlying the structure, which was offset by cash distributions we received during the quarter. As of today our SIV Holding carries a mark to market value of approximately $55 million.

Finally, during the quarter, we made a $20 million payment on our outstanding debt. Our current outstanding debt is $20 million and is reflected in current liabilities on the balance sheet. This is down from an original debt level of $254 million about two years ago. I will now take any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) And we have a question coming from the line of Glenn Greene with Oppenheimer. Please go ahead, sir.

Glenn Greene – Oppenheimer & Co

Thank you. Hey Dennis, how are you?

Dennis J. McGonigle

Hi, Glenn, how are you?

Glenn Greene – Oppenheimer & Co

Good. Few questions, first is do you have the LSV revenue in the quarter?

Dennis J. McGonigle

I do. Give me one second. It’s about $67 million.

Glenn Greene – Oppenheimer & Co

$67, okay, and then the tax rate to assume going forward the quick as a little bit lower this quarter?

Dennis J. McGonigle

Yeah, well Kathy is sitting next to me, so I’ll give Kathy all the credit. I mean her team has been working hard on tax planning strategies, and as we talked about in the second quarter, we had some benefit in the second quarter, some additional benefit this quarter, and we’ll have some benefit going forward a little bit tax rate we’ll probably go up a little bit going forward.

Glenn Greene – Oppenheimer & Co

So are you saying on 35% or so?

Dennis J. McGonigle

Yeah, I would say 35% is a good number.

Glenn Greene – Oppenheimer & Co

All right then.

Dennis J. McGonigle

And hopefully, we’ll get some benefits on things we’re working on that will improve that a little bit.

Glenn Greene – Oppenheimer & Co

And then the final question, which is more of a reconciliation question. On your press release you highlight for the company I think with 7.9 million of news net sales events.

Dennis J. McGonigle

Right.

Glenn Greene – Oppenheimer & Co

And as I heard Joe and Steve talk, I’ve heard Steve suggest $4 million for his business and almost $8 million for Joe’s business, so I’m missing something there.

Dennis J. McGonigle

Yeah, certainly, I’m glad you brought that up. In that sales number we inadvertently included in the netting of it the revenue loss from market depreciation on bank asset management

Glenn Greene – Oppenheimer & Co

Okay.

Dennis J. McGonigle

Which is about $4million, a little over $4 million. So you would grow those numbers up by $4 million.

Glenn Greene Oppenheimer & Co

But generally you don’t that, right. not only you don’t take…

Dennis J. McGonigle

Correct…

Glenn Greene Oppenheimer & Co

So which should have been closer to $12 million, that’s what you are saying?

Dennis J. McGonigle

Correct. And then the recurring would be grossed up by that same $4 million and that gets you closer to what you are trying to reconcile.

Glenn Greene Oppenheimer & Co

Terrific. Okay, thanks.

Dennis J. McGonigle

All right, thanks.

Operator

Thank you. Our next question comes from the line of Chris Donat with Sandler O'Neill. Please go ahead sir.

Christopher R. Donat – Sandler O'Neill

Yeah, just why does the debt appear as a current liability as opposed to long term now?

Dennis J. McGonigle

Well, first, welcome aboard, Chris.

Christopher R. Donat – Sandler O'Neill

Thank you, Dennis.

Dennis J. McGonigle

I appreciate you joining the party here. Because our facility actually has a term that’s next July.

Christopher R. Donat – Sandler O'Neill

Okay.

Dennis J. McGonigle

With a five year deal and that will expire in less than a year. So we have to move that that debt up to current liabilities.

Christopher R. Donat – Sandler O'Neill

Got it. I was just wondering if that was telegraphing intent that seems like it’s been in the case to pay debt down anyway, but anyway small point. Thanks.

Dennis J. McGonigle

Although that certainly would be our intent to given our pattern here.

Christopher R. Donat – Sandler O'Neill

Yep, okay. Thank you.

Dennis J. McGonigle

You’re welcome.

Operator

Thank you. Our next question comes from the line of Jeff Hopson with Stifel Nicolaus. Please go ahead.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Hey, Dennis. The reduction in assets at LSV, it seemed a little large, so and the non-US industries were down more. You know what the mix of assets is in terms of their investments between US and non-US?

Dennis J. McGonigle

It’s still predominantly US, large cap, small cap, I mean it do have VP products that have a decent amounts of assets in them. But there are you know absolute terms, we’re really down pretty significantly. It’s just to remind us that their S&P was down 14%, and small cap was more than that. And their EPS will be down even more than that.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Right, yeah, that’s what I was looking at the – non-U.S. being down 20%, okay. But they did have net cash flows?

Dennis J. McGonigle

Yeah, just over $500 million when I came from, as I mentioned, new clients as well as the existing clients.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Right.

Dennis J. McGonigle

They’ve had this for a while; they do get rebalancing it, impact sometimes that was in our favor, sometimes it doesn’t.

Jeffrey Hopson – Stifel Nicolaus & Company, Inc.

Okay, very good. Thank you.

Dennis J. McGonigle

You’re welcome.

Operator

Thank you. And there are no further questions in the queue, I’ll turn it back to management.

Alfred P. West, Jr.

Thanks, Dennis. And I would now like to turn it over to Kathy Heilig to give you a few companywide statistics.

Kathy C. Heilig

Thanks Al. Good afternoon everyone. I have some additional corporate information regarding this quarter. Third quarter cash flow from operations was $82.7 million or $0.45 per share. Year-to-date cash flow from operations are $175.5 million or $0.94 per share.

The free cash flow for the third quarter was $48.8 million and that does reflect a debt repayment of $20 million. The year-to-date free cash flow is $58.9 million and that reflects debt repayment of $75 million. The third quarter capital expenditures were $2 million and that excludes capitalized software. Capital expenditures for the remainder of this year would be about the same next quarter, about $2 million.

Now, we already talked about the tax rate, which was 33.8%, and both this quarter and last quarter did reflect some tax planning that’s whether its later we would expect some of that often reflected in next quarter as Dennis already said with the rate approximately 35%. But when we go into next year, we would expect the rates to be 36% because the tax plan we did this year has an element of one-time in it as well as permanent reduction.

I also would caution that that 36% rate, it seems that the R&D tax credit, which is another deduction that we get is extended, that itself expires at the end of the year but it always seems to get extended.

The accounts payable balance at September 30th is $6.9 million. And we would like to remind you that many of our comments are forward-looking statement and are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited.

Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements here in as a result of future developments. You should refer to our periodic SEC filings for 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

(Operator Instructions) Our first question comes from the line of Chriss Donat with Sandler O'Neill. Please go ahead.

Christopher R. Donat – Sandler O'Neill

Hi. I think I’ll shoot this one up for Al and maybe for Dennis. Most probably more of a bored question. But just looking at the cash of over $400 million on the balance sheet and trying to think how much really need to run the business and then the stock below 15 today after you paid $17 a share to repurchase in the third quarter. Anyway, do you think differently about the mix of dividends and share repurchases given where the stock is priced right now and given how much cash you have?

Dennis J. McGonigle

Well, I’ll give you my thoughts and then Al would correct it. Now I think our, I mean generally, the Board’s view is, certainly we have an active ongoing stock repurchase program, and I think third quarter you saw us get a little more aggressive on that, and that it’s safe to say that given where the stock prices and given our certain strong beliefs in the future growth as a company that that would continue. And the question about dividends, I’ll just leave that up to the Board to address, which they will in December. But I think, you’ve seen historically at the eye, fairly consistently the dividend has gone up, and I believe even last June of the last time we had the dividend declaration went up 18% or so.

Christopher R. Donat – Sandler O'Neill

Okay.

Alfred P. West

I agree to everything Dennis said. Board actually had this suggestion yesterday, and like Dennis said, the dividend decision won’t be made until December, but we are very active in our stock repurchase and candid any it will be that way and if we get the opportunity, we will stock available, we will go as heavy as and we can.

Christopher R. Donat – Sandler O'Neill

Okay. Thanks, that helps.

Alfred P. West

All right, Chriss.

Operator

Thank you. And there are no further questions in the queue. I'll turn it back to management.

Alfred P. West

Well, so thank you, Kathy. So ladies and gentlemen, although short-term growth has been very difficult to come by, I remain bullish about our long-term business opportunity and the positive impact we will make on the markets we serve. We’re always proud of ourselves as being innovators in our market and that is no more true than today. And our focus is on wavering on that.

With that includes the discussion we’ve had today. If there is any questions that might have come to you as a sort of a [burn up] you have a chance to ask them now.

Operator

Just one moment please.

Alfred P. West, Jr.

Well, if there is no questions then, I wish everybody a very good afternoon and thanks for joining us.

Operator

I’m sorry there are no questions at this time.

Alfred P. West, Jr.

Okay. I’ll thank you again. Thank you very much for joining us and I appreciate your time. Have a great afternoon.

Operator

Ladies and gentlemen, this conference will be available for replay after 4 p.m. Eastern today through October 19, 2012 at midnight. To access the AT&T Executive Replay system at any time by dialing 1-800-475-6701 or 320-365-3844 with the access code of 220311.

Ladies and gentlemen, this does conclude our conference call for today. And thank you for your participation and you may now disconnect.

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