SEIC

SEI Investments Company 2009 10-K Summary

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009. SEI Investments Company is a global provider of investment processing, fund processing, and investment management business outsourcing solutions. As of year-end 2009, the company administered $391.7 billion in mutual fund and pooled assets and managed $158.8 billion in assets. The company operates through 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 15% to $1.06 billion, primarily driven by a 19% drop in asset-based fees due to capital market depreciation in late 2008 and early 2009.
• Profitability Improvement: Despite lower revenues, Net Income attributable to SEI increased 25% to $174.3 million. This was largely due to a significant reduction in losses from Structured Investment Vehicles (SIVs) compared to 2008.
• SIV Losses: The company recognized $5.8 million in SIV-related losses in 2009, a sharp decrease from the $148.9 million loss recorded in 2008. The company purchased remaining SIV securities from its money market funds in 2009, canceling all Capital Support Agreements.
• Debt Increase: Long-term debt increased significantly to $253.6 million (from $31.5 million in 2008) due to a $254 million borrowing under the company's credit facility to finance the purchase of SIV securities.
• Segment Performance: The LSV Asset Management segment saw revenues drop 19% to $212.0 million. The Private Banks and Investment Advisors segments also experienced revenue declines of 12% and 26%, respectively, due to lower assets under management.

Guidance, Outlook, and Risks

• Global Wealth Platform (GWP): The company continues to invest in the GWP, capitalizing $43.9 million in 2009. A new release in late 2009 resulted in $15.4 million of accelerated amortization expense. The platform is expected to be deployed in the U.S. in 2012.
• Accounting Change: Effective January 1, 2010, the company will deconsolidate LSV and LSV Employee Group due to new FASB standards on Variable Interest Entities (VIEs). LSV will be accounted for under the equity method. This will reduce reported total revenues and expenses but will not affect Net Income attributable to SEI.
• Client Losses: The company expects a loss of approximately $14.2 million in recurring revenues in 2010 due to the loss of two large bank clients in the Private Banks segment resulting from mergers and acquisitions.
• Risks: Key risks include continued volatility in capital markets affecting asset-based fees, the potential for additional losses on remaining SIV securities (cost basis $290.9 million vs. market value $113.8 million as of Feb 2010), and regulatory changes. The company is also facing litigation related to ProShares leveraged ETFs and services provided to Stanford Trust Company.

Investor Verification Checklist

• SIV Exposure: Verify the current fair value and potential for further losses on the remaining SIV securities held by the company (cost basis ~$291 million).
• Deconsolidation Impact: Review the pro forma financial statements provided in Note 2 to understand the impact of deconsolidating LSV on future revenue and asset reporting.
• Client Concentration: Monitor the impact of the announced loss of two major Private Banks clients on 2010 recurring revenue.
• Legal Proceedings: Track the status of the ProShares ETF class action and the Stanford Trust Company-related lawsuits.
• Capital Allocation: Assess the sustainability of the stock repurchase program (approx. $127.5 million remaining authorization) and dividend policy given the debt incurred for SIV purchases.