SEI Investments Company's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Jan.25.12 | About: SEI Investments (SEIC)

SEI Investments Company (NASDAQ:SEIC)

Q4 2011 Earnings Call

January 25, 2012 - 2:00 p.m. ET

Executives

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

Dennis J. McGonigle – Chief Financial Officer

Kathy C. Heilig – Chief Accounting Officer and Controller

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

Analysts

J. Jeffrey Hopson – Stifel, Nicolaus & Co., Inc.

Christopher R. Donat – Sandler O’Neill & Partners, L.P.

Glenn Greene – Oppenheimer Securities

Robert Lee – Keefe, Bruyette & Woods, Inc.

Jeffrey Bronchick – Cove Street Capital, LLC

Leonard DeProspo – Janney Montgomery Scott, LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SEI Investment's Fourth Quarter 2011 Earnings Conference Call. (Operator Instructions)

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

Alfred P. West, Jr.

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

I'll start by recapping the fourth quarter and full-year 2011. I'll then turn it over to Dennis to cover LSV and the investment in new businesses. And after that, each of the business segment leaders will comment on the results of their segments. And then finally, Kathy Heilig will provide you with some important company-wide statistics. As usual, we will field questions at the end of each report. So let me start with the fourth quarter and full-year 2011.

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

Our earnings for the fourth quarter of 2010 and 2011 were affected by gains and losses attributable to the SIVs on our balance sheet, as well as the sale of other assets. Now, during fourth quarter 2011, SIVs accounted for a loss of 700 million -- $700,000, while fourth quarter 2010 -- while in the fourth quarter 2010, SIVs and the sale of other assets netted to an increase to earnings of approximately $18 million.

Now also during the fourth quarter 2011, our non-cash asset balances under management increased by $10 billion. Of that, SEI's assets under management grew by $5.7 billion during the quarter, while LSV's assets under management grew by $4.3 billion. Now, please note that the capital markets' performance, particularly at the end of third quarter 2011, had a negative impact on fourth quarter revenues in our asset management businesses.

Our Institutional Investors segment was most negatively affected due to the way that business segment calculates and takes fees. Ed Loughlin will address this issue in his comments. Now, thanks to a stronger market exiting 2011, our asset management fee should respond positively. Now, during the fourth quarter 2011, we repurchased [$3.2 million] [ph] of SEI stock at an average price of just over $16 per share. Now that translates to over $52 million of stock repurchases during the quarter.

For the entire year, the numbers are $11.1 million -- 11.1 million shares purchased at an average price of $19 a share, representing $211 million of repurchases. Now, net new recurring revenue sales, while better, are still slower than we would like. Nonetheless, the Investment Managers and Private Banking segments had good sales quarters, signing a number of accounts.

In addition, the Advisors segment added a number of new advisors to its roll. Plus, the Advisor and Institutional Investor segments showed modest growth in net new business, and each of the segment heads will address their sales events when they talk about their segments. All in all, we generated over $20 million of net new sales events, of which $16 million were recurring revenues.

Now, turning our attention to GWP. We are continuing our investment, and its functionality and its operational infrastructure is so critical to our future. Now, during the first quarter we capitalized approximately $10.4 million of the Global Wealth Platform development and amortized approximately $7.3 million of previously capitalized development.

Now, while we're increasingly encouraged with our long-term growth opportunities with the roll-out of GWP, we are working hard to improve the profitability of our Bank segment. We recently initiated a cost reduction and control program with particular emphasis on banking, and we began to see the results of some of these efforts in the fourth quarter.

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

I just returned from London where I met with a number of clients and prospects, and I continue to be encouraged by the feedback I'm receiving from our markets. Our investments in infrastructure and new service offerings are helping us to outdistance our competitors across all of our business lines, and we certainly expect to capitalize on this even in these challenging markets.

For our new service offerings coupled -- our new service offerings, coupled with our financial strength, positions us well for the long-term growth. Now, this concludes my remarks. So I will ask Dennis McGonigle to give you an update on [LSV] [ph] and the Investments in New Business segment. And after that, I'll turn it over to the other business segments. Dennis?

Dennis J. McGonigle

Thanks, Al. Good afternoon, everyone. I will cover the fourth quarter results for the Investments in New Business segment and make a few brief comments on LSV Asset Management. During the fourth quarter of 2011, the Investments in New Business segment continued its focus on marketing and sales activities directed to the ultra-high net worth investor and the further development of services.

During the quarter, the Investments in New Business segment incurred a loss of $2.2 million, which compares to a $1.5 million loss during the third quarter 2011. There has been no significant change in this segment. We expect losses in the segment to continue in this range during 2012.

Regarding LSV, we continue to own approximately 41% of LSV in the fourth quarter. LSV contributed approximately $23.4 million of income to SEI during the quarter. This compares to approximately $23.9 million in the third quarter of 2011. The decrease is due primarily to some fourth quarter expense true-ups that were booked during the quarter.

Asset balances grew approximately $4.3 billion during the quarter, primarily from market appreciation. LSV had net negative cash flow during the quarter of approximately $650 million. Net cash flows from new and lost clients were a positive $150 million, while net cash flows from existing clients due to rebalancing or reallocation were negative $800 million.

During the quarter, we generated losses totaling $700,000 from the SIV security we hold on our balance sheet. This loss was primarily a result of a decrease in the mark-to-market value of the collateral underlying the structure, 4offset by cash distributions we received during the quarter. As of today, our SIV holding carries a mark-to-market value of approximately $51 million.

Finally, during the quarter, we made a $20 million payment on our outstanding debt. We currently have no debt. I will now take any questions you may have.

Operator

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

Alfred P. West, Jr.

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

Joseph P. Ujobai

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

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

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

We now have 15 signed GWP clients in the U.K., 7 are business transition clients and 8 are infrastructure clients. Of the 15 clients, 8 firms are national IWAs, 5 firms are private client investment managers, and 2 are banks. These 15 clients give us a base to grow our business in the U.K. The business transition clients have substantial assets to convert to GWP and the infrastructure clients all have plans to grow their business.

During 2011, net new cash flow of the GWP was over $1.5 billion. Unfortunately, our asset balances are also subject to market depreciation. Year-end assets processed on GWP was $15.2 billion. The pipeline continues to grow as we replace closed deals with new opportunities and expand to new segments such as larger private client investment managers. The U.K. GWP pipeline stands at approximately $60 million, and is beginning to lean more towards larger infrastructure type clients.

Turning to the U.S., we closed one additional community bank. And due to a recent merger, we also signed a new book of business from one of our largest BSP clients. In 2012, we are moving our focus towards selling only GWP to new prospects. We are resetting the sales force and our marketing infrastructure to substantially increase GWP sales activity here in the U.S.

GWP gives us the opportunity to target many new names and non-trust businesses and banks, and other large wealth managers. Our U.S. investment processing pipeline is the largest it has been in recent years, and is moving away from Trust 3000 towards GWP. During the quarter, we re-contracted 9 bank clients for $18 million, and for the year we re-contracted 27 clients for $60 million.

We have been working hard to secure our current business, and about 70% of our Trust 3000 revenue is re-contracted until 2015 or longer. Finally, as a review of our asset management distribution business, new cash flows into SEI asset management programs remained slow. Ending asset balances grew to $16.4 billion largely due to the year-end market appreciation.

In conclusion, in 2012 we are focused on, number one, improving private banking and GWP profitability by maximizing revenues through asset transition and conversions, and managing expenses as we grow the revenue; and secondly, accelerating sales momentum through segment expansion in the U.K. and market entry in the U.S. Are there any questions?

Alfred P. West, Jr.

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

Wayne M. Withrow

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

For the year, revenues were $190 million, a 3% increase from 2010. The fourth quarter, on the other hand, experienced a 4% revenue decline from the third quarter. Fourth quarter results reflect that a 60/40 diversified private client portfolio appreciated 7.3% in the fourth quarter, but those gains were insufficient to cover the AUM decline caused by the 11.3% loss experienced in the third quarter.

Profits for the fourth quarter totaled $17.5 million, a $1.3 million drop from the third quarter. This was in line with our revenue decline and benefited from a slight reduction in expenses. Assets under management were $30.4 billion at December 31st, an increase of $1.6 billion from September 30th. This increase was primarily due to market appreciation and was aided by $136 million in net positive cash flow.

Keep in mind that revenue for this segment is recognized based on our average daily asset balances, not ending balances. The average daily balance was $29.9 billion, a 1.4% decline from the same metric with the third quarter and that is why our revenue declined. The fact that our ending AUM was higher than our average AUM should give us a head start as we go into 2012.

During the quarter, we recruited 146 new advisors, bringing our total for the year to 529. As we launched GWP in the U.S. advisor market, we expect that we will appeal to larger advisors than have normally consumed that offering and we are refocusing our sales force to recruit these larger advisors.

For 2012, we will concentrate on three main areas. First, we are laser-focused on the rollout of GWP. Our beta test of 85 small advisors is going well and we are on track to rollout GWP to five large advisors at the end of the second quarter. Additional advisors should be added during the fourth quarter and a more aggressive rollout should commence in 2013.

Second, we will continue to focus on new advisor recruiting, although we may try to focus a little more on quality rather than quantity. Third, we will continue to try to improve the net cash flow of both our new and existing advisors. Our $436 million in net positive cash flow in 2011 represents our first net positive year since 2007.

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

Alfred P. West, Jr.

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

Edward D. Loughlin

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

While 2011 annual revenues of $210 million increased 2% compared to 2010, fourth quarter revenues declined by 4% compared to the third quarter. As you recall, capital markets declined significantly during the third quarter. As a proxy, a 60/40 globally diversified institutional portfolio declined negative 9.7% in the third quarter. During the fourth quarter that same 60/40 institutional portfolio posted a positive 7.3% rate of return.

The fourth quarter rally did not eliminate the shortfall from the third quarter, and for revenue recognition purposes, institutional investors' fees are calculated based on the average of the prior four-month end balances. September being both the end of the third quarter for fee calculations and the beginning of the fourth quarter fee calculation so the negative 5.5% capital market performance for the month of September impacts both quarters' revenues.

Profits of $103 million increased for the year but decreased for the quarter to $23 million, following the same pattern as revenues. Increased sales and incentive compensation expense for the fourth quarter negatively impacted quarterly profits. Margins dipped to 46.5% for the quarter and ended the year a little above 49%. Asset balances increased $727 million during the year, totaling $53.4 billion at year-end. Client losses during the quarter caused net new client fundings to be negative $487 million.

This was the result of several clients being acquired by larger organizations and also an interest in low-cost passive strategies in the U.K. market in particular. Revenue impact for the quarter and the year from the losses was minimal due to the late timing in the quarter. The full impact will be reflected in 2012. Our backlog of committed but unfunded assets at year-end was $1.1 billion. Sales activity for the quarter increased, with $1.8 billion in new client sales for the quarter and totaling $4.9 billion for the year.

During the quarter, we were successful in selling a larger investor and it gives us optimism that larger investors are returning to the market. Our focus for 2012 is in three areas. We continue to build the pipeline to win new client relationships and place increased emphasis on larger investors. We continue to provide clients with value-added advice and client service. And, lastly, we continue to differentiate our solutions, investment strategies that are sensitive to clients attaining their business goals.

This concludes my remarks. I'm happy to entertain any questions you may have.

Alfred P. West, Jr.

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

Stephen G. Meyer

Thanks, Al. Good afternoon, everyone.

Fourth quarter 2011 revenues for the segment totaled $44.5 million which was $1.9 million or 4.5% higher than our revenues for the fourth quarter of 2010. On a quarterly basis, this was $1.1 million or 2.4% lower than the third quarter of 2011. This quarter-over-quarter decrease in revenue was primarily due to asset balance declines in the quarter as well as one-time revenue associated with conversion fees that were received in the third quarter and not repeated in the fourth quarter.

Our quarterly profit for the segment of $15.2 million was approximately $200,000 or 1.1% higher than our profit for the fourth quarter of 2010. On a quarter-over-quarter basis, this was approximately $1 million or 5.8% lower than our profit for the third quarter of 2011. Quarter-over-quarter decrease in profit was largely due to our decrease in our revenue for the quarter, combined with an increase in incentive and sales compensation expense.

Third-party asset balances at the end of the fourth quarter of 2011 were $221.2 billion, approximately $2.4 billion or 1.1% lower as compared to our asset balances at the end of the third quarter of 2011. The decrease in assets was primarily due to net negative cash flows of $4.46 billion, offset by market appreciation of $2 billion. The net negative cash flows were comprised mainly in specific stable value in money market funds.

The full impact of these lower asset balances as well as specific hedge fund redemptions that were larger at the end of this year will be realized in the first quarter. During the fourth quarter of 2011, we had net new business sales events totaling $8 million in annualized revenue. In addition, we re-contracted existing clients with annualized revenue totaling $6.8 million.

For the year, our new business sales events totaled approximately $27 million and our total re-contracts for the year were $34.6 million in annualized revenue. This represents a solid year in revenue and re-contracting events and marked good progress of our growth plan.

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

As we turn to 2012, our focus for continued growth will be fourfold. First, to continue to sell aggressively into our target markets; second, to install our current backlog of sold but unfunded deals over the next 12 to 18 months; third, to continue to expand our wallet share with our current clients; and fourth, to continue to innovate and expand our solutions to keep us ahead of the market.

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

Thank you for your time and I will now turn it over to any questions you have.

Alfred P. West, Jr.

Thank you, Steve. And now, I would like to turn it over to Kathy Heilig to give you a few company-wide statistics. Kathy?

Kathy C. Heilig

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter.

Fourth quarter cash flows from operations were $81.4 million or $0.46 per share. Year-to-date cash flows from operations, $257 million or $1.40 per share. The fourth quarter free cash flow, $49.4 million or $0.28 per share and that does reflect debt repayments of $20 million. The year-to-date free cash flow, $108.4 million or $0.59 per share, and that reflects debt repayments of $95 million.

The fourth quarter capital expenditures, excluding capitalized software, were $1.5 million. Year-to-date capital expenditures, excluding capitalized software, were $12.3 million and next year 2012, we would expect capital expenditures, excluding capitalized software, to be between $8 million to $10 million. The tax rate for the fourth quarter was 34.7%, which is a little higher than the 33.8% tax rate in the third quarter.

2011 tax rate does reflect, both reinstatement of the R&D tax credit, as well as some other tax planning opportunities that we had. For next year, we would expect the tax rate to increase between 36% to 37%. And some of that -- and that would depend on the outcome of whether the R&D tax credit gets extended once again. The accounts payable balance at December 31 was $2 million.

We would also like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks, and that the financial information presented in our release and on this call is unaudited.

Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results.

And now at this time, please feel free to ask any other questions that you might have.

Question-and-Answer Session

Operator

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

J. Jeffrey Hopson

Hi there, Joe.

Joseph P. Ujobai

Hi, Jeff.

J. Jeffrey Hopson

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

Joseph P. Ujobai

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

J. Jeffrey Hopson

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

Joseph P. Ujobai

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

J. Jeffrey Hopson

Okay. And then in the U.S. you actually mentioned some potential clients in the pipeline. When would it be realistic to actually see a client sign on here, even though the U.S. is not completely ready?

Joseph P. Ujobai

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

J. Jeffrey Hopson

Okay, thanks.

Operator

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

Christopher R. Donat

Hi. Good afternoon, Joe.

Joseph P. Ujobai

Hi, Chris.

Christopher R. Donat

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

Joseph P. Ujobai

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

And so, we had expense related to both, development as well as building out the operating infrastructure, growing that in London and beginning to build that in the U.S. We did see then, particularly, in the second quarter some substantial expense growth. And since then, we've really put some controls in place to try to, number one, firstly prevent continued substantial growth of expenses, so to try to keep expenses relatively at that current run rate.

And then, we continue to look at other opportunities in certain areas of our business to lower expenses. So, we're not going to do anything to jeopardize the opportunity we think that we have based on the investments that we've made, but we are going to watch expenses, try not to grow them, try to drive more scale in our businesses, and then add new expense as we potentially -- as we continue to grow the business over time.

Christopher R. Donat

Okay. So if expenses grow, it'll likely coincide with the revenue growth, though, right?

Joseph P. Ujobai

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

Christopher R. Donat

Okay, thanks.

Operator

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

Glenn Greene

Thanks. Hey Joe, how are you?

Joseph P. Ujobai

Good, Glenn. Thanks.

Glenn Greene

So just clarity on the $60 million pipeline, that was specific to the U.K.?

Joseph P. Ujobai

That's correct, yes.

Glenn Greene

And do you have a quantification for the U.S. pipeline or really not?

Joseph P. Ujobai

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

Glenn Greene

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

Joseph P. Ujobai

Yes, it's -- the average account size in the pipeline is growing. So that means some larger PCIMs in that space, and then what we call jumbos; so some of the banks or books of business inside of the banks, and as well as other wealth managers like insurance firms. So I think the average size is getting larger.

Glenn Greene

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

Joseph P. Ujobai

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

Glenn Greene

If I recall, you were close to like $100 million annual run rate, I think, for '11?

Joseph P. Ujobai

That's correct.

Glenn Greene

Plus or minus for '12 or flat?

Joseph P. Ujobai

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

Glenn Greene

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

Joseph P. Ujobai

We're still at fairly low percentages. Probably 10%, 20% have been converted. Asset -- business transition has taken -- it's been a little bit tougher than we've expected, I think than our clients had expected. We were -- as Al mentioned, we were in London last week talking to a number of clients. And -- but we've put more resources in place, we've moved some more resources to help those clients. We've built some more management information to help those clients and we're very, very focused.

We made a hire, specific in London, that we announced towards the end of last year, to specifically focus on helping our firms -- in building a team to help our firms. That's a transition. But we're still on pretty low transition rate, so the opportunity is still fairly substantial for us.

Glenn Greene

Okay, great. Thank you.

Operator

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

Robert Lee

Great, thank you. Good afternoon.

Joseph P. Ujobai

Hi, Rob.

Robert Lee

Hey, Joe. Maybe kind of drilling into the new business a little bit, is it possible -- well, two questions to start off; possible to get a sense of the $16 million of the sales events on a recurring basis, kind of how much of that falls into the Private Banks segment? And then, maybe the second piece; you kind of touched on it in terms of the business transition.

Maybe it's 10% to 20% completed, but is there any way of quantifying the book of business that contractually still is to be converted in total? And is your current feeling that that may occur over a two or three year timeframe? Just trying to get a feel for how that may flow in.

Joseph P. Ujobai

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

Robert Lee

Okay.

Joseph P. Ujobai

With regard to the opportunity in the business transition space, there are substantial assets out there. We've got about $15 billion of assets on the platform. If you go to all of our business transition clients and add up all the assets that they believe they have control over, there's easily another $30 billion to $50 billion of assets there. Now some of those are in securities or inside of, say, insurance vehicles and things that may never transition. So we believe that over time, of that additional $30 billion to $50 billion of assets, probably 60% to 80% of that's convertible.

And I think, again, we have been selling IWAs now for the last couple of years. We've brought several of them on in 2010, and in -- in late 2000 -- couple in late 2010, most of them on in 2011. Most of our clients are in very, very early days of conversion. We think things like RDR, the change in the regulatory environment, is an absolutely positive market momentum activity for us. And as I said, we put some additional resource in addition to people as well as MI in platform development to get these assets converted faster.

So, the good news is that all of our clients have the exact same desire as us to get -- they bought us because they wanted to have a single infrastructure. And again, we're working with them to try to convert assets. So we've got good plans in place, plans that have been agreed by every client, and we will keep trudging away at it. But I think that will be an important part of our growth going forward.

Robert Lee

All right, great. And maybe one follow-up if I could, just on the re-contracting, any kind of update on kind of the pricing environment? If I recall from the last call or two, it's -- while still maybe down, it had improved from certainly where it was a year or two ago. Just any update on that?

Joseph P. Ujobai

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

Robert Lee

All right, great. Thanks for taking my questions.

Joseph P. Ujobai

Thanks.

Operator

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

Jeffrey Bronchick

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

Joseph P. Ujobai

Well, I think we have a number of opportunities in the U.S. So certainly in the community bank and large advisor space, we have begun to talk more actively in that market. And I think with large firms, we talk mostly about a book of business or a segment of theirs. So I don't think the first thing would be to -- I know the first thing wouldn't be the convert one of our large clients or to bring on a very, very large book of business from a U.S. bank.

It would most likely be getting started with a segment of their business, maybe an affluent segment or a business that they were now maybe focusing on concentrating to grow. But I wouldn't see us converting a very, very large book of business as a first client at one fell swoop.

Jeffrey Bronchick

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

Joseph P. Ujobai

Historically, it's worked, we sign a contract. But to do -- to get a contract signed we do a lot of what we call discovery. So we spend a lot of time with the prospect determining how we would improve their business model by moving them to GWP. So it's not full-blown -- it's not really beta testing of technology.

It's really looking at the services that we'd develop and lining those services up to the way they deliver their business today or the way they may want to in the future. So there's a fair amount of work done prior to contract signing. And then we sign and then we do the -- a more traditional conversion work around reworking business flows, converting data, those kinds of things.

Jeffrey Bronchick

Got it. And share repurchase is -- you guys are continuing on a pretty steady pace all through the year. Any material changes to thoughts of that in 2012?

Joseph P. Ujobai

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

Jeffrey Bronchick

Thank you.

Operator

Thank you. And so your next question is from Jeff Hopson of Stifel Nicolaus, and your line is open.

J. Jeffrey Hopson

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

Joseph P. Ujobai

So it was an expense item. So, some of our modest movement towards expense improvement got whacked out a little bit by that. And it had to do with we have a distribution client in Canada and we work with a third-party that calculates the fees and they give fees to the distributor and they give fees to us, and they were giving us too much of the fees back.

And so, we identified that in January and we did our best to calculate what that number would look like. We took $1.2 million in the first quarter and now we're going back a little bit further -- in the fourth quarter, $1.2 million in the fourth quarter and now we're going back looking a little further back in our relationship with that distributor.

J. Jeffrey Hopson

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

Joseph P. Ujobai

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

J. Jeffrey Hopson

Okay, great. Thanks.

Operator

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

Robert Lee

Great, thank you. Hi, Wayne. How are you doing?

Wayne M. Withrow

Hey Rob.

Robert Lee

Quick question. I mean understanding that the average AUM declined 1% or so in the quarter and contribute to the lower revenue, but it also looks like maybe the fee rate has been kind of trending down a bit in the last couple of quarters. Is there -- there is something else going on there, I don't know if it's some money fund fee waivers perhaps or something with the mix or anything to point to?

Wayne M. Withrow

Yeah, I think there's a lot of noise in there. I think it's a little bit -- as asset balances decline, there's less scale within the funds. So what we -- so our waivers go up because we have to help -- subsides the funds a little bit. And I think there's a little bit of -- there was a slight shift more into liquidity type products, right now yielding very low fees.

Robert Lee

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

Wayne M. Withrow

Yeah. I think, Rob, I'm focused on the expenses all the time in which -- we have sort of a confident initiative to try to keep the expenses in line in the Advisor segment, so I think it's sort of more the same for us.

Robert Lee

Okay, fair enough. That's it. Thank you very much.

Operator

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

J. Jeffrey Hopson

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

Wayne M. Withrow

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

J. Jeffrey Hopson

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

Wayne M. Withrow

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

J. Jeffrey Hopson

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

Wayne M. Withrow

I mean we're talking to everybody about it.

J. Jeffrey Hopson

Okay, thanks.

Operator

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

Glenn Greene

Hey, Wayne, just one quick question. So this $430 million fund flows for the year, what was the mix like, how much of that was from new versus existing advisors, directionally?

Wayne M. Withrow

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

Glenn Greene

Okay, okay, that's all I had. Thanks.

Operator

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

Christopher R. Donat

Hi, good afternoon, Wayne.

Wayne M. Withrow

Good afternoon.

Christopher R. Donat

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

Wayne M. Withrow

Okay, it's pretty evenly split. I think probably about a third of the new advisors come over from a competitor, maybe another third of them are people that are trying to strengthen their fee-based business, maybe they're primarily a commission based -- in a commission base model today or they come over from a -- being primarily an insurance producer.

And, then maybe another third of people that we say just -- they just hit the growth wall, so they are in one of these other business models and they just can't grow because they spend so much time on infrastructure items that they're not selling, servicing their existing clients. So they're more willing to outsource the investment process and the operations to us.

Christopher R. Donat

Okay, that's helpful. Thank you.

Operator

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

Robert Lee

Thank you. Hi, Ed. How are you?

Edward D. Loughlin

Good, Bob. How about yourself?

Robert Lee

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

Edward D. Loughlin

Again, I think we're optimistic. I think that we saw sales from year-to-year increase almost $1 billion from '10 to '11 and so the fact that institutional investors are out there. I think I would say they're more serious about an end date to their decision-making; that's what gives us the optimism because the difference between a good sales year and a great sales year is getting a couple of large investors, and so that's why the emphasis is key for this year.

Robert Lee

Okay, great. And, then maybe just one follow-up; you're talking about the focus in 2012 on larger investors and I'm just curious from a strategic perspective, the thought process behind going up-market a little bit, particularly when you do hear about more -- in some cases traditional asset managers and others who are trying to play in the fiduciary space. And, presumably many of them are targeting some of the upmarket, whether it's BlackRock or others. So just trying to get a feel for why move up-market a little bit from traditionally where you've had your best success and a little bit lower – not lower end but lower asset size?

Edward D. Loughlin

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

Robert Lee

Okay.

Edward D. Loughlin

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

Robert Lee

All right, great. Thanks Ed.

Edward D. Loughlin

Sure.

Operator

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

J. Jeffrey Hopson

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

Edward D. Loughlin

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

J. Jeffrey Hopson

Okay, thanks.

Operator

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

Glenn Greene

Good afternoon, Steve.

Stephen G. Meyer

Good afternoon, Glenn. How are you?

Glenn Greene

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

Stephen G. Meyer

Yes, pipeline is relatively the same. Yeah, there has been movement, some wins, some of the deals have gone on hold but we have added some new deals so it's relatively around the same. I'd say slightly higher, it's about $110 million.

Glenn Greene

$110 million, okay. And then, you referenced a term that I hadn't heard from you before, sold but unfunded deals.

Stephen G. Meyer

Yes.

Glenn Greene

Is there a way to think or quantify that?

Stephen G. Meyer

Well, you probably heard -- you remember me mentioning, and I think I mentioned it back in the Investor Presentation back in June, this is basically backlog concept.

Glenn Greene

Yes.

Stephen G. Meyer

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

Glenn Greene

Yes.

Stephen G. Meyer

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

Glenn Greene

$30 million, okay.

Stephen G. Meyer

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

Glenn Greene

Okay, perfect. Thanks, Steve.

Stephen G. Meyer

Sure.

Operator

Thank you. And I'm showing no other questions at this time. Oh pardon me. I do have a question from Robert Lee of KBW. Your line is open.

Robert Lee

Thank you. Hi, Steve, how are you?

Stephen G. Meyer

Good. How are you?

Robert Lee

Good, thanks. I'm just curious, one of your, I guess, hedge fund admin competitors out there in the U.K. kind of, I guess, announced they pretty much put themselves up for sale, I guess?

Stephen G. Meyer

Yes.

Robert Lee

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

Stephen G. Meyer

Well, I think a couple of things. So one, generally about the industry, so there's a number of our competitors up for sale, or that have been whether officially or unofficially shopping themselves. I think that's kind of a sign of the times. I do believe as these markets are a little bit harder, I do believe quality and there's a flight to quality, I think you will see more consolidation in the industry.

Our view, as you know, we have not typically been an acquisitive company especially in this area. But I believe I mentioned this on our last call in the third quarter, we are not interested in looking at business just for the sake of buying business. If there is a business that could help us expand our market reach, or get us into new markets, or complement the solutions we have, we would be interested in looking at that.

Robert Lee

Great, thanks so much.

Stephen G. Meyer

Sure.

Operator

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

Christopher R. Donat

Hi, I think this question might be best for Dennis. Just looking at the consolidated income statement and the expense line for sub-advisory distribution and other asset management cost, is that where that roughly CAD1 million expense appeared?

Dennis J. McGonigle

Yes.

Christopher R. Donat

Okay. And then we expected again in the first quarter something similar in magnitude and then it would drop-off, hopefully?

Dennis J. McGonigle

Well, it would go away, yeah.

Christopher R. Donat

Yeah, okay, got it. That's it for me.

Dennis J. McGonigle

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

Operator

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

Glenn Greene

Yeah. These are questions for Dennis. How are you Dennis?

Dennis J. McGonigle

All right, Glenn.

Glenn Greene

First one, just the LSV revenue in the quarter?

Dennis J. McGonigle

Yes, I ought to just give you this right upfront because I think this is one of your standard questions, Glenn.

Glenn Greene

It is.

Dennis J. McGonigle

The revenue for the quarter was $68 million.

Glenn Greene

Okay, and then a couple of the segment sort of highlighted higher incentive accruals, was there anything unusual, or just sort of the normal sort of end of year sort of incentive accruals and maybe just frame how the incentive accruals looked in aggregate?

Dennis J. McGonigle

Yeah, it was really end of the year I call it true-up for the year. And well the total accrual, I don't understand that last part.

Glenn Greene

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

Dennis J. McGonigle

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

Glenn Greene

In aggregate?

Dennis J. McGonigle

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

Glenn Greene

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

Dennis J. McGonigle

I can -- if you hold on a second on, I'll [confirm] [ph]. Yeah, it was about $41 million.

Glenn Greene

$41 million?

Dennis J. McGonigle

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

Glenn Greene

And care to hazard a reasonable expectation for 2012?

Dennis J. McGonigle

We're optimistic.

Glenn Greene

I thought you might be. All right, thanks a lot.

Dennis J. McGonigle

Thanks.

Operator

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

Leonard DeProspo

Hi, good afternoon and thank you for taking my question. This question is just for Joe, quick one. With the increased focus on selling in the U.S. this year, is that going to -- when you said you are going to be focusing there, does that mean additional head count or are you shifting resources from the U.K. into the U.S.?

Joseph Ujobai

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

Leonard DeProspo

Great, thank you.

Operator

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

Alfred P. West, Jr.

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

And our focus on long-term growth and revenues and profits is unwavering. So, thank you very much for your attention today. But before you go, our Annual Investor Day will be held on May 30 this year, with a dinner the night before, May 29. So please save the date and invitations will be sent out in advance. So have a good evening, good afternoon and evening, and thank you again.

Operator

Ladies and gentlemen, this conference will be available for replay after 4:00 p.m. Eastern Time today, through April 25th, 2012. You may access the AT&T TeleConference Replay System at any time by dialing 1-800-475-6701 and entering the access code 234129. International participants please dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844, access code, 243129.

This does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

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