SEIC

SEI Investments Company 2008 Annual Report (10-K) Summary

Business Context and Reporting Period

Company: SEI Investments Company (SEI)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: SEI is a global provider of investment processing, fund processing, and investment management outsourcing solutions. As of December 31, 2008, the company administered $379.6 billion in mutual fund and pooled assets and managed $134.3 billion in assets. Operations are organized into six segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, Investments in New Businesses, and LSV Asset Management.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 9% ($121.1 million) primarily due to a 12% drop in asset management fees caused by the severe decline in capital markets and a 32% reduction in total assets under management.
• Profitability Impact: Net income fell 46% ($120.6 million). This was driven by a $158.2 million charge related to Capital Support Agreements for money market funds holding Structured Investment Vehicle (SIV) securities and a 25% drop in earnings from the LSV Asset Management segment.
• Asset Flows: While equity and fixed-income assets declined significantly, the Investment Managers segment saw a $19.5 billion increase in assets under administration, and the Institutional Investors segment added $5.2 billion in net new client funding.
• Cost Management: Personnel costs decreased $40.3 million due to lower incentive compensation tied to performance targets and reduced sales activity.

Guidance, Outlook, and Risks

• SIV Exposure: The company faces significant contingent liabilities related to SIV securities held by its money market funds. As of February 20, 2009, the total risk of loss was estimated at $336.5 million. The company expects to purchase remaining SIV securities by April 1, 2009, which could result in further charges.
• 2009 Outlook: Management anticipates lower revenues and extended sales cycles in 2009 due to the economic environment. They expect to incur one-time costs associated with workforce reductions in the first quarter of 2009.
• Capital Strength: Despite the SIV exposure, management believes available cash ($416.6 million) and borrowing capacity (up to $300 million credit facility, with $105 million unrestricted as of Feb 2009) are sufficient to manage obligations.
• Technology Investment: Continued investment in the Global Wealth Platform is expected, with development expenditures in 2009 projected to be lower than 2008. Amortization expenses will increase due to new releases.
• Risks: Key risks include further deterioration in credit markets affecting SIV valuations, consolidation in the banking sector leading to internalization of services, and regulatory changes affecting broker-dealers and investment advisors.

Investor Verification Checklist

• SIV Liability Resolution: Verify the actual cash outflow and final loss recognition related to the purchase of SIV securities from money market funds in Q1 2009.
• Asset Under Management (AUM) Trends: Monitor the stabilization of AUM, particularly in the Private Banks and Investment Advisors segments, which were heavily impacted by market declines.
• Workforce Reduction Costs: Confirm the magnitude of one-time charges associated with the announced workforce reductions in Q1 2009.
• Credit Facility Covenants: Review compliance with the leverage ratio covenant (currently 1.10x EBITDA) as earnings fluctuate due to SIV charges.
• Global Wealth Platform Adoption: Assess the revenue contribution from the new Global Wealth Platform releases to determine if it offsets the decline in legacy asset-based fees.