SEIC
#Since 2000, but I am not keeping track.
I don't think people are absolutely leaving the market.
We have a big book of business and we have a really big book of business and people move.
That can sometimes ---+ or markets move, that can sometimes exaggerate the bottomline results.
But our activity with new advisors remains very, very strong.
And as <UNK> mentioned, we are increasing the number of sales territories and you see some of that in the expense.
We are increasing our footprint because we see more opportunity to get more assets and we can get more coverage.
I think we are still in a situation where we can grow the profits of this business.
One dynamic to keep in mind is when you look at the asset growth, we had declines in the market reflected in our revenue and we offset that by ---+ well, not completely but we helped offset that with $1.4 billion in net new sales.
Net new sales has an expense component associated with it where appreciation and depreciation in the market really don't have much expense tied to them.
They kind of fall right to the bottom line.
So asset growth for markets is much, much more profitable than asset growth from actual sales, if that makes sense.
There were absolutely investments in SWP associated with both development and in the conversion activity as we begin the migration of the book.
And ---+ but there are also investments in the sales force and in growing the operational infrastructure for the traditional business model.
We're both.
Thank you, <UNK>.
Our next segment is the institutional investment (technical difficulty) and I am going to turn it over to <UNK> <UNK> to discuss this segment.
<UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
Today I'm going to start by framing the investment landscape during the third quarter.
The quarter was marked by heightened volatility with high-quality fixed income segments faring pretty well, while higher risk segments delivered a range of negative returns.
Global equity markets fell significantly with steep declines ranging from negative 3% for US small cap to negative 17% for merging market equities.
As you know, revenue for the institutional segment is asset-based as calculated by averaging the last four months ending balances.
Market depreciation negatively impacts revenues earned during the quarter and if capital markets are negative during the last month of the quarter, revenue is negatively impacted for two quarters.
Ending asset balances compared to the second quarter declined by $4.8 billion to $73 billion.
Revenues of $74 million for the third quarter increased 3% compared to the year-ago period.
However, third-quarter revenues declined $1.5 million compared to the second quarter due to capital market performance during the quarter.
I would expect fourth-quarter revenues to be negatively impacted due to starting the fee calculation with depressed September ending asset balances.
Quarterly profits of $37 million were flat year to year, but declined $2 million compared to the second quarter.
Margins at 50% declined slightly compared to the second-quarter 2015 and the year-ago period.
Net new client assets funded during the quarter was negative $144 million due to slower client transitions during the summer.
As a result, the backlog of committed but unfunded assets at quarter end was $2.5 billion.
New client sales closed during the quarter were $1.7 billion.
New client adoption continues to be well-diversified by both market segments and geography.
So in closing, we continue to be well-positioned to successfully compete in the institutional fiduciary management space.
We enjoy a strong pipeline and we remain optimistic about the growth opportunities for the segment.
Thank you very much, and I'm happy to entertain any questions you may have.
Sure.
I guess the trend towards unbundling, that is typically is with larger institutional investors, so we continue to see a fair amount and what we would call the core market that are bundled types of deals.
So that is something that is not across the board in the unbundling and the pressure on the fees from that perspective.
<UNK>ts Continue to grow in popularity.
I would say that of the $73 billion that we have in assets, we have about $5 billion in alternative programs.
So it's relatively small.
You know, in proportion of the assets.
Do you have easy ones for me.
Yes, I mean there is kind of good news and bad news.
The good news is that we continue to see a lot of sales activity, positive sales activity and closes in the global market, the UK market in particular, and the contract process is slower there.
And it is primarily because the trustees do not work for the Company.
They are separate from the Company.
So, unlike in the US, where if a contract is negotiated it could just be sent around on their office mail and signed by all the trustees because they are employees of the Company, it doesn't happen that way in the UK.
And they don't call special meetings just to sign our contracts.
So there really is kind of a delay.
We have about 10 clients that are in that backlog.
I would suspect that between now and the end of the year, the bulk of those if not all of those would be funded.
And then the summertime is just maybe a little bit slower for funding just in general.
I think that your observation about the expense levels is pretty much correct.
I think that one thing that would change that if it does change it, would be direct costs.
So the more successful that we are outside of the US, okay, the manager costs there, we account for them a little bit differently, but that is good news.
I have other good news for you.
I am not going to develop my own SWP, okay, so I will convert to that when it is ready.
You don't have to worry about any rogue projects going on in the institutional business.
So other than that, we tend to just kind of invest through the business.
So we buy new modelers.
We have done that in the UK last year.
We didn't in the US this year.
And it just gets absorbed by the business.
Thank you, <UNK>.
Our final segment today is investment managers, and I'm going to turn it over to <UNK> <UNK> to sit discuss this segment.
Thanks.
Good afternoon, everyone.
For the third quarter of 2015, revenues for the segment totaled $67.2 million which was $3.5 million or 5.5% higher than our revenue in the third quarter of 2014, and was slightly lower as compared to our revenue in the second quarter of 2015.
This quarter-over-quarter minor decrease in revenue was primarily due to market decline during the quarter, as market depreciation more than offset our new client fundings.
Our quarterly profit for this segment of $23.3 million was approximately $1.9 million or 7.5% lower than the second quarter of 2015.
This decrease in profit was primarily driven by our increase in investment and addition of headcount for future new business.
Third-party asset balances at the end of the third quarter of 2015 were $376.1 billion, approximately $5.8 billion or 1.5% lower as compared to our asset balances at the end of the second quarter of 2015.
Decrease in assets was primarily due to market depreciation of $12.4 billion, offset by net client fundings of $6.6 billion.
Turning to market activities, during the third quarter of 2015, despite market volatility we had a solid sales quarter.
Net new business sales events totaled $7.1 million in annualized revenue.
These sales included new name sales and expansion of our business with our current clients.
In summary, despite the volatile market which dampened revenue growth in the quarter, we continue to add new business and see growth opportunity in the market.
To that end, we will continue to invest in our solutions and workforce as we look towards executing on this growth.
That concludes my prepared remarks and I will now turn it over for any questions you may have.
Yes, I think you are referring to backlog and that is hovering right around $30 million.
Yes, I mean as things fund, luckily as we continue to sell and grow business in the quarter, that's typically goes on for at least a couple of quarters.
And then obviously we will work into the fund what is on the backlog as quickly as possible.
Well, I think ---+ I don't think there's any change you saw in this quarter.
But I think what we continue to see this year has proven out, and it is not just our bank-based competitors.
This is a very competitive market.
There are fees and competitors that try to compete with fees, but certainly puts pressure.
But I think when you stick to the right segment of the market, and the values that you entered the market with, we are really focused on not providing a commodity for our clients and new prospects.
And I think when you match up with the right folks, while fees are always important, I think people are willing to pay for the right value proposition.
So what I say is I think we will what we see from all of our competitors a little bit more aggressive this, but nothing that is out of the norm behaviorwise or otherwise.
(laughter) Thank you Rob, for bringing that up.
Yes, you can hear us on Bloomberg every day.
Thank you for the plug, though.
Well, first, it's a great question.
But I think it's a difficult question to answer.
If you look at ---+ we have a diverse client base, which is great.
Obviously a good portion of our business, about 56% is in the alternative side, which ranges from hedge fund, some fund to funds, private equity.
So it is hard for me to give you a sliver of percentage moves.
What I would tell you is if you look at most hedge fund indexes for Q3, I think the average hedge fund was down around 3.9%.
If you look at our asset declines, we were down about 1.5%.
I think if you went back to 2008 and looked at the declines there, you would see a similar trend.
While we certainly went down, I don't think we had quite as an aggressive impact as kind of the pure asset classes or even some of our competitors.
And I think what has balanced that is we do have a good diverse portfolio of clients.
So what I say in general, and I am not sure this helps you completely, but we are not immune to the market moves.
And certainly we saw that, but I do think because of the caliber of our client base and the diverseness ---+ the diversity of them, it does offer us somewhat.
Yes, that is in that number, and in this business there is always losses.
There was no ---+ what I would say significant losses.
I would certainly bring them up or we certainly have a significant recontract order.
I view that as part of the business day today.
So the number you did get was net.
What I would say to you is we are right in the range of ---+ and I choose my words carefully ---+ but I view it as a solid quarter.
I would expect that sales number and our goal is to drive that sales number higher.
Well, <UNK>, the number I just gave, just to be clear, so we are all talking the same, the number I gave previously was backlog.
That is deals that we have won that have yet to be funded.
I think what you are asking is pipeline of the deals out there.
What I would tell you is, it is strong.
Our pipeline is probably the largest it has been in two years.
However, it is taking longer to get to the pipeline.
Thanks, <UNK>.
I would like <UNK> <UNK> to give you a few Companywide statistics.
<UNK>.
Well, it is hard for ---+ to predict the next quarter of future performance fees because they are based on performance.
So (multiple speakers) that is a little bit more challenging.
But fourth quarter is generally ---+ last year was in a similar range, about 7% of total revenue.
So it is roughly in the same range we had in third quarter.
That was about close to 13%, 14% of revenue.
So, ladies and gentlemen, despite our headwinds, we are optimistic about what we are doing and the investments we are making.
Looking ahead, we intend to keep our focus on long-term growth in the revenues and profits and we remain bullish about our opportunities.
So good afternoon, and thank you for your time and interest.
