Q3 2023 SEI Investments Co Earnings Call
Yeah.
Ladies and gentlemen, thank you standing by and welcome to the S. E. T. I third quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, today's call is being recorded.
I will now turn the call over to your host director of Investor Relations, Alex Whiting them. Please go ahead Sir.
Thank you and welcome everyone. We appreciate you for joining us today for our third quarter 2023 earnings call on the call. We have Ryan Hickey S. He is chief.
Chief Executive Officer, Dennis Mcgonigle, Chief Financial Officer, and leaders of our business segments Wayne Withrow, Paul Clowder, Joseph Rihanna, Phil Mccabe, Sanjay Sharma and snapshot.
Before we begin I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at <unk> Dot com.
This call is being webcast live and a replay will be available on the events and webcast page of our website.
We would like to remind you that during today's presentation and in our responses to your questions. We have and will make certain forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Please refer to our notices regarding forward looking statements that appear in today's earnings press release and in our filings with the Securities and Exchange Commission we.
We do not undertake to update any of our forward looking statements with that I'll turn the call over to CEO, Ryan Hickey Ryan Thanks, Alex Hello, everyone and thank you for joining us despite a challenging market environment, we delivered solid results for the third quarter with quality top line and earnings growth.
As I laid out at last year's Investor Day, we are surgically focused on the following areas.
Growing our sales results and segments and markets, where we believe we can repeatedly win.
We are seeing that play out with investment managers regional and community banks U K private client investment managers and larger ria's.
Adding talent and capital to enhance internal insight with outside perspective, and launching more organic and acquired new businesses for future revenue generation and growth.
We're focused on investing in automation AI and alternatives to drive scale and service excellence and continuing to deliver long term earnings growth driven by revenue and enhanced with smart expense management.
We are proud of our momentum as we are executing our long term growth strategy, while managing our company for profitability I'm excited about what we see ahead, knowing we are not satisfied or complacent, we will keep executing and innovating.
Turning to Q3 results.
Revenues in the third quarter were $477 million up 1% from a year ago.
Net income for the quarter was $116 million.
Yes with 87.
Keep in mind that our third quarter results for 2022 were impacted by a onetime expense related to our voluntary separation program.
Absent this expense this year's third quarter EPS increased by 10 or.
We're 13% year over year on a comparable basis.
Dennis will provide more details on our results.
In the quarter, we repurchased one 4 million shares of MSCI stock at an average price of $61 43 per share that translates into $86 million of stock purchases.
The sales success, we've had throughout the year in our technology and operational outsourcing businesses continued in the third quarter.
We remain focused on generating more higher quality touch points with clients building out our pipeline and broadening our client relationships through cross sale. We also launched our enterprise sales group this quarter to increase activity across larger wealth management firms. We believe these efforts are positioning us well to capitalize on future growth.
Attunity is an increased sales.
Net sales events in the quarter totaled $14 5 million $11 $1 million of which were net recurring.
This was a combination of technology and operational outsourcing sales of $22 3 million offset by negative activity in our asset management businesses.
With that let me turn to our business lines.
Our investment managers business had another good quarter, delivering strong revenue and earnings growth the team implemented and converted new clients and funds, while managing expenses well and growth continues for this segment our constant focus on our strategic clients resulted in a number of cross sell events and client re contracts in the quarter.
We are really excited to see that we are winning across alternatives traditional and global segments.
And alternatives, our largest clients continue to expand into private credit private equity real estate and infrastructure markets.
During the quarter, we on boarded two firms through competitive takeaways and won a highly competitive new bid.
Globally. We also continue to see strong flows from existing relationships and we have expanded our sales leadership and client service functions on the ground to enhance our pipeline development.
In the traditional business, we are seeing a trend with our larger clients who are beginning to launch alternative funds. This provides significant opportunity for STI.
Unknown Executive: Ladies and gentlemen, thank you for standing by and welcome to the SEI Third Quarter 2023 Earnings Call. At this time, our participants are on a listen-only mode. Later, we will conduct a question and the instructions will be given at that time. As a reminder, today's call has been recorded.
We are also seeing continued increased interest in our CIP platform.
Next private banking drove another solid quarter, signing three deals in re contracting five client. The team also successfully delivered on their backlog implementing five clients on the <unk> platform, representing more than $15 million in recurring revenue from the backlog.
Alexander Whitelam: I will now turn a call over to your host, Director and Investor Relations, Alex Whitelam. Please go ahead, sir. Thank you and welcome, everyone. We appreciate you for joining us today for our third quarter 2023 Earnings Call. On the call, we have Ryan Hicke, SEI's Chief Executive Officer, Dennis McGonigle, Chief Financial Officer, and leaders of our business segments, Wayne Whitelam, Paul Klauder, James Cipriano, Philip McCabe, Sanjay Sharma, and Snowsha. Before we begin, I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at SEIC.com.
During the quarter, we migrated more than 115000 accounts and approximately $360 billion in assets, including our substantial both from U S Bank moving from Trust 3000, USW P and cibc's converge into ex WP from competitive platforms.
We also went live with our multi custody solution, which is generating broad interest with both our existing and prospective client base.
Alexander Whitelam: This call is being webcast live and a replay will be available on the events of webcast page of our website. We would like to remind you that during today's presentation and on our response to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results different materially. Please refer to our notices regarding forward-looking statements that appear in today's earnings press release and in our filing with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements.
The private banking business continues to move forward by capitalizing on our expanding pipeline and prudently managing expenses, while we still have some previously announced events to absorb in coming quarters. We are confident in our margin growth strategy for the business that we have discussed on previous calls.
Moving to our global asset management business investment advisors had net positive cash flows of approximately $612 million <unk>.
Ryan Hicke: With that, I'll turn the call over to CEO, Ryan Hickey. Thanks, Alex. Hello, everyone, and thank you for joining us.
Primarily driven by our separately managed account strategist partner solutions and open architecture technology and custody that support advisor driven investment flexibility.
Ryan Hicke: Despite a challenging market environment, we delivered solid results for the third quarter, with quality, top line, and earnings growth. As I laid out at last year's Investor Day, we are surgically focused on the following area. Growing our sales results in segments of markets where we believe we can repeatedly win. We are seeing that play out with investment managers, regional and community banks, UK private client investment managers, and larger RIAs. Adding talent and capital to enhance internal insight with outside perspective and launching more organic and acquired new businesses for future revenue generation and growth.
The team is executing on our growth plan for the business and we are focused on driving more revenue growth to capitalize on the robust opportunity set that we see within the intermediary space.
We've also continued to enhance our solutions for this business, including SDI connect to provide a front office digital collaborative wealth management experience for advisors and their end clients.
All new advisors benefit from the enhanced investor portal, and we're seeing solid adoption across the entire client base.
We're also advancing our efforts to build out custody capabilities for alternative assets.
Ryan Hicke: We're focused on investing in automation, AI, and alternatives to drive scale and service excellence, and continuing to deliver long-term earnings growth, driven by revenue and enhanced with smart expense management. We are proud of our momentum as we're executing our long-term growth strategy while managing our company for profitability. I'm excited about what we see ahead. Knowing we are not satisfied or complacent, we will keep executing and innovating, turning to Q3 results. Revenues in the third quarter were $477 million, up 1% from a year ago.
Finally, we launched our liquid alternative strategy in our U S Fund complex, we expect to see this fund we expect to sell this fund standalone for the time being and we will included in models offered to advisors early next year.
All of this is another step in our initiative to offer models with private asset classes to intermediaries.
We believe these enhanced solutions are poised to attract more advisers, especially in the RA space, which we've highlighted as a particular area of growth for us in the future.
And the institutional investors segment, we experienced a more challenging environment, but we're working to drive greater revenue and profitability for that business corporate defined benefit curtailments in annuity nations continue to be headwinds in the UK and the U S.
Ryan Hicke: Net income for the quarter was $116 million. EPS was $87, keep in mind that our third quarter results for 2022 were impacted by a one-time expense related to our voluntary separation program. Absent to expense this year's third quarter EPS increased by 10 cents, or 13% year over year on a comparable basis. Demis will provide more details on our results. In the quarter, we re-purchased $1.4 million shares of FCI stock at an average price of $61.43 cents per share.
Given expectations that these headwinds will persist in 2024, we proactively took some steps during the quarter to strategically align our resources and position the business for long term success.
We remain focused on managing expenses appropriately, but also improving engagement with our clients and utilizing our enterprise wide approach to meet our clients, where they want to be met.
Ryan Hicke: That translates into $86 million of stock Services. The sales success we've had throughout the year and our technology and operational outsourcing businesses continued in the third quarter. We remain focused on generating more higher quality touch points with client, building out our place line and broadening our client relationships through crosshairs. We also launched our enterprise sales through this quarter to increase activity across larger wealth management firms. We believe these efforts are positioning us well to capitalize on future growth opportunities and increase sales.
We are confident that our upcoming acquisition of an additional master trust structure in the U K, we will advance our competitive footing across all institutional segments in that market.
As a market leader, we are committed to competing and winning across the institutional landscape.
Turning to our investments in new business segment, we continue to assess our market offerings and the best path forward to enhance growth. We're pleased with the progress and expect future success and finally, our partnership with LSP remains strong.
On the talent and culture front, we've made strategic investments throughout the year that continue to enhance <unk> brand awareness and drive employee engagement.
Ryan Hicke: Next sales events in the quarter total 14.5 million, 11.1 million dollars of which were net recurring. This was a combination of technology and operational outsourcing sales of 22.3 million dollars offset by negative activity in our asset management businesses.
This concludes my prepared remarks, I will now turn it over to Dennis to discuss our financial results for the quarter Dennis Thanks, Ryan as Ryan mentioned EPS for the quarter was 87.
Ryan Hicke: With that, let me turn to our business lines. Our investment manager's business had another good quarter delivering strong revenue and earnings growth. The team implemented and converted new clients and funds while managing expense as well and growth continues for this segment. Our constant focus on our strategic clients resulted in a number of cross sell events and client recontracts in the quarter. We are really excited to see that we are winning across alternatives, traditional and global segments.
This compares to <unk> 45 during the third quarter of 2022, and <unk> 89 for the second quarter of 2023.
Revenue for the quarter was $477 million.
Compared to $471 million in 2022 and $489 million in the second quarter.
Total expenses for the quarter were $368 million, which compares to $420 million last year and $376 million in the second quarter.
Ryan Hicke: In alternatives, our largest clients continue to expand into private credit, private equity, real estate and infrastructure markets. During the quarter, we onboarded two firms through competitive takeaways and won a highly competitive new bid. Globally, we also continue to see strong close from existing relationships and we have expanded our sales leadership and client service functions on the ground to enhance our pipeline development. In the traditional business, we are seeing a trend with our larger clients who are beginning to launch alternative funds.
On the sales front, and our technology and investment processing businesses of private banking and investment managers net sales events totaled $22 3 million and are expected to generate $19 million in recurring revenue.
In our asset management related businesses net sales were approximately negative $7 6 million, primarily due to losses and repricing in our institutional business.
Total net sales were $14 7 million of which $11 4 billion as recurring.
Ryan Hicke: This provides significant opportunity for SDI. We are also seeing continued increased interest in our CIC platform. Next, private banking drove another solid quarter, signing three deals and recontracting five clients. The team also successfully delivered on their backlog implementing five clients on the SDI wealth platform, representing more than $15 million in recurring revenue from the backlog. During the quarter, we migrated more than 115,000 accounts in approximately $360 billion in assets, including a substantial book from US bank, moving from trust 3000 to SWP and CIVC's conversion to SWP from competitive platforms.
Private banking sales were $3 3 million of which $2 1 million is recurring.
This reflects three new SVP sales, a new clients Sci a previously lost clients decided to stay with Sci and an added book of business due to a client acquisition.
We re contract with five clients during the quarter, representing $7 million in annual recurring revenue.
Ryan Hicke: We also provide with our multi-cuff fee solution, which is generating broad interest with both our existing and prospective client base. The private banking business continues to move forward by capitalizing on our expanding pipeline, and prudently managing expenses. While we still have some previously announced events to absorb in coming quarters, we are confident in our margin growth strategy for the business that we have discussed on previous calls.
The private banking segment's focus on the regional community banks.
All with the <unk> segment in the U K paying off.
During the quarter, we were active with client implementations and conversions as Ryan mentioned.
This includes a large book of business with CIBC.
First financial and a significant business migration for U S Bank on trust 3000 to west of E&P, helping solidify our SVP SaaS solution as market ready.
The current backlog of sold but expect it to be installed revenue in the next 18 months is $21 5 million.
Asset management revenues in private banking were up slightly from the second quarter.
Ryan Hicke: Moving to our global asset management business, investment advisors had net positive cash loads of approximately $612 million. Primarily driven by our separately managed accounts, strategist partner solutions, and open architecture technology and custody that support advisor driven investment flexibility. The team is executing on our growth plan for the business and we are focused on driving more revenue growth to capitalize on the robust opportunity set that we see within the intermediary space. We've also continued to enhance our solutions for this business, including SEI Connect to provide a front office digital collaborative wealth management experience for advisors and their clients.
Expenses in the quarter were down from the second quarter of 2023, reflecting the efforts by Sanjay and the team to bring private banking back to higher levels of profitability.
On the investment managers front net sales for the quarter were $19 million $16 8 million of which is recurring.
During the quarter, we re contracted five clients totaling $9 million in annual recurring revenue.
Revenue for the quarter was up compared to the second quarter, reflecting the impact of client installs expenses.
Expenses were essentially flat or.
Our backlog of sold but expected to install in the next 18 months recurring revenue is $34 million.
Ryan Hicke: All new advisors benefit from the enhanced investor portal and we're seeing solid adoption across the entire client base. We're also advancing our efforts to build out custody capabilities for alternative assets. Finally, we launched our liquid alternative strategy in our US fund complex. We expect to see this fund, we expect to sell this fund standalone for the time being and will include it in models offered to advisors early next year. All of this is another step in our initiative to offer models with private asset classes to intermediaries. We believe these enhanced solutions are poised to attract more advisors, especially in the RIA space, which we've highlighted at the particular area of growth for us in the future.
We're investment advisors net cash flow onto our platform was a positive $612 million, we experienced increased flows into our newer strategic asset management solutions and platform only programs and negative flows from our more mature mutual fund products.
Our comprehensive offering is key to us moving the business forward.
Revenues for the quarter were up from second quarter due to improved capital markets during the second quarter.
Set by third quarter capital markets and the product mix of flows.
Expenses were flat.
We recruited 57, new advisors during the quarter eight of which are in the newer RIAA channel.
Ryan Hicke: In the institutional investor segment, we experience a more challenging environment, but we're working to drive greater revenue and profitability for that business. Corporate defined benefit curtailments and annuitations continue to be headwind in the UK and the US. Given expectations that these headwinds will persist in 2024, we proactively took some steps during the quarter to strategically align our resources and position the business for long term success. We remain focused on managing expenses appropriately, but also improving engagement with our clients and utilizing our enterprise wide approach to meet our clients where they want to be met.
In the institutional investors segment net sales events for the quarter were negative $5 8 million.
Reflecting positive client signings offset by losses in re pricing and client retention activities.
Revenues for the quarter were down $4 7 million.
Due to net client asset losses.
Expenses were also down $5 5 billion, reflecting general expense management and a onetime item in the second quarter of $4 5 million.
And the investments in new business segment revenues expenses were up slightly compared to second quarter and will remain in this range.
Ryan Hicke: We are confident that our upcoming acquisition of an additional master trust structure in the UK will advance our competitive footing across all institutional segments in that market. As a market leader, we are committed to competing and winning across the institutional landscape.
In addition to the segments. The company also incurred a $2 $2 million expense item related to severance as a result of organizational changes principally in our institutional business.
We've made adjustments to the workforce to align our talent and resources to the opportunities in the segments we serve.
Ryan Hicke: Turning to our investments in new business segment, we continue to assess our market offerings and the best path forward to enhance growth. We are pleased with the progress and expect future success. And finally, our partnership with LSB remains strong. While the talent and culture front we've made strategic investments throughout the year that continue to enhance SDI's brand awareness and drive employee engagement.
While this will result in run rate savings, we expect to redeploy these savings by expanding our sales resources and growing institutional markets and increasing our distribution efforts around alternative assets. This.
This expense is reflected in overhead on our press release.
Ryan Hicke: This concludes my prepared remarks.
<unk> produced $29 9 million in profit during the quarter. This compares to $32 $7 million during the second quarter.
Dennis McGonigle: I will now turn it over to Dennis to discuss our financial results for the quarter. Dennis. Thanks Ryan. As Ryan mentioned, EPS for the quarter was 87 cents. This compares the 45 cents during the third quarter of 2022 and 89 cents for the second quarter of 2023. Revenue for the quarter was 477 million dollars compared to 471 million in 2022 and 489 million in the second quarter. Total expenses for the quarter were 368 million dollars, which compares the 420 million last year and 376 million in the second quarter.
Revenues for <unk> were $102 2 million compared to $108 8 million in the second quarter.
Third quarter revenues included $9 million of performance fees.
OSB recorded performance fees of $12 7 million during the second quarter.
Performance fees are a reflection of continued positive relative performance.
One final item as we mentioned in July we entered into an agreement to acquire the National pension Trust.
The transaction is expected to close before year end subject to applicable regulatory approval.
Dennis McGonigle: On the sales front in our technology and investment processing businesses, a private banking and investment managers, net sales events total 22.3 million and are expected to generate 19 million in recurring revenue. In our asset management related businesses, net sales were approximately negative 7.6 million primarily due to losses and repricing in our institutional business. Total net sales were 14.7 million of which 11.4 million is recurring. Private banking sales were 3.3 million of which 2.1 million is recurring.
Point, you to our 10-Q for more information.
Our tax rate for the quarter was 22, 5%, we expect a slight step down in it.
And tax rate in the fourth quarter that.
That concludes my remarks, and all of our unit heads are on the call and we're happy to take any questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
You may remove yourself from the queue at any time by repeating the London zero commands.
Yes.
First line Owen Lau Oppenheimer.
Dennis McGonigle: This reflects 3 new SBP sales, a new client's SEI, a previously lost client decided to stay with SEI and an added book of business due to a client acquisition. We re-contracted 5 clients during the quarter representing 7 million dollars in annual recurring revenue. The private banking segments focus on the regional community banks along with the PCIM segment in the UK paying off. During the quarter, we were active with client implementations and conversions as Ryan mentioned.
Please go ahead.
Thank you for taking my question.
I think you highlighted that the strength of investment managers on little bit, but can you. Please take a little bit deeper because it grew nicely year over year margin has been expanding I'm. Just wondering if you can talk more about the dry bulk of stream.
D&S.
The arts firms and traditional asset managers.
Any any pocket that you are targeting mostly in growth and market. Thank you.
Yes, that's a great question I hope you're doing well I'll take the first stab and then I'll turn it over to Phil to maybe provide some more color.
Dennis McGonigle: This includes a large book of business with CIBC, First Financial, and a significant business migration for US bank on Trust 3000 to SWP, helping solidify our SWP sad solution as market ready. The current backlog of sold but expected to be installed revenue in the next 18 months is 21.5 million dollars. As that management revenues and private banking were up slightly from the second quarter, expenses in the quarter were down from the second quarter of 2023, reflecting the efforts by Sanjay Nateen to bring private banking back to higher levels of profitability.
So if you think about the overall market opportunity we have today and why I think we continue to drive growth. One is we are really focused on premium levels of service to our client base and that has really paid dividends for us as clients are launching new funds. We are winning the lion's share of those funds and we stay very very focused on the level and quality of <unk>.
Service to those clients.
We've continued to deploy more talent and capital in the technology space to enhance our offering there I think bill can talk a little bit I Wouldnt your point about future growth inside the U S. I think there's just a continued trend and appetite for outsourcing that positions us well as firms really think about where they should be deploying their capital for growth.
Dennis McGonigle: On the investment managers front net sales for the quarter were 19 million dollars, 16.8 million of which is recurring. During the quarter, we re-contracted 5 clients, totaling 9 million in annual recurring revenue. Revenue for the quarter was up compared to second quarter, reflecting the impact of client installs, expenses were essentially flat. Our backlog of sold but expected to install in the next 18 months recurring revenue is 30.4 million dollars. For investment advisors, net cash flow onto our platform was a positive 612 million.
I see more of that really in product creation Alpha generation and distribution and are really looking at <unk> as a strategic partner for technology and operational delivery.
And we're really starting to increase our footprint as I mentioned in global but bill you want to provide a little bit more color either around certain spots are areas. We're really enthusiastic about not just the existing pipeline, but the future runway in this business.
Thanks, Ryan and this is Phil Mccabe just real quick the margins came in a little higher this time at 36.2, if you look year to date, they averaged about 35%, which is right about where we said we would be over the course of the year or so so so I expect that number to continue for a little while and.
Dennis McGonigle: We experienced increased flows into our newer strategic asset management solutions and platform only programs and negative flows run more mature mutual fund products. Our comprehensive offering is key to us moving the business forward. Revenue for the quarter were up from second quarter due to improved capital markets during the second quarter, all set by third quarter capital markets and the product mix uploads, expenses were flat. We recruited 57 new advisors during the quarter, eight of which are in the newer RIA channel.
I think we spent a lot of time managing expenses at the same time, we're investing in the future on the sales Brian $19 million in net sales if you look at that.
Year over year for three quarters, we're up about 16%. We are a net number of $61 5 million, so far and as Brian said the pipeline is strong and we're out in the market. We're all over our clients and we're getting a lot of traction globally, a lot of traction in the U S.
Dennis McGonigle: In the institutional investor segment, net sales events for the quarter were negative 5.8 million, reflecting positive client signings all set by losses and repricing in client retention activities. Revenue for the quarter were down 4.7 million due to net client asset losses. Expenses were also down 5.5 million, reflecting general expense management and a one-time item in second quarter of 4.5 million dollars. In the Investments in New Business Segment, revenues and expenses were up slightly compared to second quarter and will remain in this range.
You talked about private credit and real estate and infrastructure before but I think we're in a really really good spot for the future I think the runway is fairly long for what we see out there and I think we're in a really good spot on the only other thing I would say all of which we touched on a little bit upon its early but.
Yes, there is a big intersection right now growth between kind of the private asset market in the intermediary space and as Phil mentioned.
I think a lot of the traditional investment managers are also looking at how they can create and distribute some alternative products and that's a good spot for us as well to really give them the infrastructure to get those things up and running and out in the market quickly to add to that right now.
Dennis McGonigle: In addition to the segments, the company also incurred a $2.2 million expense item related to severance as a result of organizational changes principally in our institutional business. We made adjustments to the workforce to align our talent and resources to the opportunities and the segments we serve. While this will result in run rate savings, we expect to read-apply these savings by expanding our sales resources in growing institutional markets and increasing our distribution efforts around alternative assets.
The percentage of alternatives within our traditional market is really really small, but we have a major campaign going on now to try to push those products by way of interval funds and auction fund into that market. So I think we have a lot of traction and we expect to see some good results in the future.
Got it that's Super helpful. And then on the press release, you mentioned I think some of the revenue growth was driven by new products and the tissue. Most offices could you. Please maybe highlight from all these new products are you taking shares from competitors.
Dennis McGonigle: This expense is reflected in overhead on our press release. LSV produced 29.9 million in profit during the quarter, this compares to 32.7 million during the second quarter, revenues for LSV were 102.2 million compared to 108.8 million in the second quarter. Third quarter revenues included 9 million up-performance fees, LSV recorded up-performance fees of 12.7 million during the second quarter. Performance fees are a reflection of continued positive relative performance. One final item, as we mentioned in July, we entered into an agreement to acquire the national pension's trust.
Any more color would be helpful. On these new products. Thank you.
Yes from a competition perspective, we have two or three competitors that are out there but.
I don't really think that we are our clients are fairly large and sophisticated and theyre not buying based upon.
Getting a better deal or a margin. So we are getting pretty much almost all of the new funds that are launched with our <unk>.
Clients that are out there and from a prospect perspective, when we're in a deal we are usually in the final one or two and we've been doing fairly well closing those books of business. So we have three new clients on the alternative side. So far this year I mean, this quarter and in particular, there's one that we don't really named named.
Dennis McGonigle: The transaction is expected to close before you're in, subject to applicable regulatory approval. I point you to our 10Q for more information. Our tax rate for the quarter was 22.5%. We expect a slight step down in tax rate in the fourth quarter.
Does the sort of deal of the year. So far so we're in a good position when we're out in the market. Our clients are referencing us very happily and they're glad to do it and we're in a good spot. So I think we're we're winning on a number of different fronts I am not sure I can pinpoint it to one particular competitor but.
Dennis McGonigle: That concludes my remarks.
Unknown Executive: All of our unit heads are on the call and we're happy to take any questions. Thank you.
Unknown Executive: Ladies and gentlemen, you wish to ask a question. Please press 1.0 on your telephone keypad. You may remove yourself from that queue at any time by repeating the 1.0 command.
I think we are.
We're where we need to be right now.
Owen Lau: Go to the first line.
And I'll just.
Ryan Hicke: Owen Lau, Oppenheimer. Please go ahead. Thank you for taking my question. I think you highlighted the strength of investment managers a little bit. Can you please take a little bit deeper because it grew nicely over a year. Margin has been expanding. I'm just wondering if you can talk more about the drive of the strength, the healthiness of the art firms and traditional asset managers. If any pocket that you are pocketing or seeing growth in your end market, thank you.
The new product comment is.
And Phil team has done such a great great job of building really strong relationships with our clients.
Particularly the clients that continue to grow.
And expand and when they tend to come to market with a new product.
We tend to be in the room when they are designing the new products. So that's really what the references to new products, it's our clients launching new products into the market and then leaning on us.
Are there to support them, that's a great point. Thank you.
Ryan Hicke: That's a great question. I hope you're doing well. I'll take the first stab and then I'll turn over to Phil to maybe provide some more color. So if you think about the overall market opportunity we had today, why I think we continued to drive growth. One is we are really focused on premium levels of service to our client base. And that has really paid dividends for us. As clients are launching new funds, we are winning the lion share of those funds.
Charlie if I can add one more quick one was just on the cost side.
I noticed that basically.
Increase in personal costs and in the past months I.
I think you've mentioned related to compliance infrastructure to meet new regulatory requirements could you. Please talk about what these new requirements or and I think recording expense or it's more like one time expense. Thank you.
Ryan Hicke: And we say very, very focused on the level of quality of service to those clients. We've continued to deploy more talent and capital in the technology space to enhance our offering there. I think Phil can talk a little bit. I wouldn't hear a point about future growth. Inside the US, I think there's just a continued trend in appetite for outsourcing. That positions us well as firms really think about where they should be deploying their capital for growth.
On the personnel side, if youre looking at kind of second quarter to third quarter.
Remember that we talked about this on the last call I believe the mid year is when we for the bulk of our workforce. We go through salary adjustments that we made the compensation changes.
Typically go go on year on year out. So you saw some cost growth and personnel.
Ryan Hicke: They see more of that, really in product creation, alpha generation and distribution. And are really looking to let the eyes of strategic partner for technology and operational delivery. And we're really starting to increase our footprint as I mentioned in global. But Phil, you want to provide a little bit more color either in certain spots or areas. We're really enthusiastic about not just the existing pipeline, but the future runway in this business. Thanks Ryan.
As a function of that.
And then on the compliance regulatory.
Rod.
We operate in many different.
Regulatory jurisdictions.
So.
And some of the and all the jurisdictions. We operate in are highly regulated with continued change in not only the regulations that exist. In addition to those regulations, but the scrutiny under which firms that operate our put by the regulators themselves and that just has.
Ryan Hicke: Oh, and this is Phil McCabe just real quick. The margins came in a little higher this time at 36.2. If you look here today, they averaged about 35%, which is right about where we said we would be over the course of the year or so. So I expect that number to continue for a little while. And I think we spent a lot of time managing expenses at the same time we're investing in the future.
<unk> increased the workload realm.
Now relative to.
All of our jurisdictional operations when you layer on top of that the fact that we expanded into a new jurisdiction in Luxembourg.
Ryan Hicke: On the sales front, 19 million in net sales. If you look at that year over year for three quarters, we're up about 16%. We have a net number of 61.5 million so far. And as Ryan said, the pipeline is strong and we're out in the market. We're all over our clients. And we're getting a lot of traction globally. A lot of traction in the US. We talked about private credit and real estate and infrastructure before.
We've had to add some capabilities in.
And talent there.
And then when you wrap it all up with the combination of who we hire and who are kind of in full time roles.
And then.
Sure.
The use of outside professionals to help guide us as we sort through.
Some of the regulatory changes that have occurred.
That drives some of our costs.
Ryan Hicke: But I think we're in a really, really good spot for the future. I think the runway is fairly long for what we see out there. And I think we're in a really good spot. The only other thing I would say, which we touched on a little bit upon early that. There's a big intersection right now between the private asset market and the intermediary space. And as Phil mentioned, I think a lot of the traditional investment managers are also looking at how they can create and distribute some alternative products.
Finally in certain jurisdictions, we've been able to operate at a different type of leverage with using talent in certain jurisdictions to support.
The requirements in other jurisdictions.
What's happened is.
Almost every jurisdiction now requires that talent to be local.
And that's also added to our.
Personnel requirements and cost.
Cost increases.
Got it thanks, a lot I appreciate it.
Ryan Hicke: And that's a good spot for us as well to really give them the infrastructure to get those things up and running and out in the market quickly. So to add to that right now, the percentage of alternatives within our traditional market is really, really small. But we have a major campaign going on now to try to push those products by way of interval funds and auction funds into that market. So I think we have a lot of traction and we expect to see some good results in the future.
As the regulatory employment program I call it.
Sure.
Okay. Thanks, a lot Dennis alright.
Alright.
And we'll go to the line of Brian Kinney Morgan Stanley. Please go ahead.
Hey, good afternoon, thanks for taking my questions.
A couple of questions first you mentioned migrating out a large chunk of the private bank's book to ask WP This quarter.
Ryan Hicke: David, that's super helpful. And then on the press release, you mentioned, I think some of the revenue growth was driven by new products and additional services. Could you please maybe highlight some of these new products? Are you picking shares from competitors? But I mean, any more product will be helpful on these new products. Thank you. Yeah, from a competition perspective, we have two or three competitors that are out there. But I don't really think that we are our clients are fairly large and sophisticated.
Any update on where that leaves trust 3000, and should we expect any change in strategy on how long you plan to keep that asset up and running or how you plan to manage the trust 3000 system.
Yes, I'll take that first and then kick the Sanjay Ryan Hope Youre doing well.
So right now that does not change our kind of strategic plan because we have clients that are happy on trust 3000, what I would say its two things.
One we're probably more proactively engaged right now with those clients trying to understand what that timeline looks like what those operating models would be and what books of business. They will be bringing over to AWP subsides and the team has done a terrific job there kind of really increasing the engagement, but the other more important thing with the U S Bank conversion and I think Dennis had this in his script.
Ryan Hicke: And they're not buying based upon getting a better deal or margin. So we are getting pretty much almost all of the new funds that are launched with our clients that are out there. And from a prospect perspective, when we're in a deal, we're usually in the final one or two and we've been doing fairly well closing those books of business. So we have three new clients on the alternative side so far this year.
It is to have that size of an organization operating with the software as a service model really opens up a different level of conversation in the market for Sanjay and the team around either existing or prospective Sci clients that don't want to outsource. The back office that are looking for technology as a service. So this is a really import.
Ryan Hicke: I mean, this quarter. And in particular, there's one that we don't really name names was the sort of deal of the year so far. So we're in a good position when we're out in the market, our clients are referencing us very happily and they're glad to do it. And we're in a good spot. So I think we're we're winning on a number of different fronts. I'm not sure I can pinpoint it to one particular competitor, but I think we're you know, we're where we need to be right now.
Improved statement.
We're really happy where they are right now with this conversion with the successful weekend, the big book of business and it's one that the market has been watching.
<unk> you would add to this.
And I would echo the same as well.
In terms I'll start on the trust 3000.
As I mentioned that we would be would stay aligned with our clients starting to see.
So you can look at the overall just $3 business in two different segments, our larger clients who are in software. The service model. They are closely watching how we are implementing U S bank and that is going very successfully.
Ryan Hicke: The new product comment is you know, and Phil's team has done such a great great job of building really strong relationships with our clients and the particularly the clients that continue to grow and expand. And when they kind of come to market with a new product, you know, we kind of be in the room when they're designing the new product. So you know, that's really what the references to new products. It's our clients launching new products into the market and then leading on us to be there to support them. That's a great point. Thank you.
And the second segment you can look at the clients we are running.
Outsourced operations model and Thats, where we are.
Activity engaging with our clients.
They are coming up for renewal, we are working with them to move them to <unk>.
WP.
But it's not a forced march.
Thanks, and then just as a follow up.
Definitely I appreciate the efforts to get the private banking margins towards higher profitability. It looks like you've started to make some progress there with margins moving from low single digits. It looks like now high single digits is that the right range going forward and as you.
Dennis McGonigle: Garley, if I can add one more quick one, which is on the cost side, I noticed that there's an increase in personal costs and investments. I think you mentioned related to compliance infrastructure to meet new regulatory requirements. Could you please talk about what these new requirements are and are they recurring expense or it's more like one time expense? Thank you. Now on the personal side, we're looking at kind of second quarter to third quarter.
Put together all the piece parts of the SW PMI accretion on an expense management is there any update on what margin level you'd be happy with in that business.
So I think Ryan this is one we've been really consistent.
The team continues to execute on our plan to continue to grow those margins and to do that incrementally quarter over quarter, either through a combination of revenue.
Dennis McGonigle: I remember that, you know, we talked about this on the last call. I believe that mid-year is when we, you know, for the bulk of our workforce, we go through salary adjustments and we make compensation changes that typically go on, you know, year and year out. So you saw some cost growth in personnel as a function of that. And then on the compliance regulatory front, we operate in many different regulatory jurisdictions.
Iteration and revenue increase through sale and continued expense management. So I mean, we are really focused on that we don't plan to deviate from that plan to continue to grow those margins moving forward.
Dennis McGonigle: So, you know, in all the jurisdictions we operate in are highly regulated with continued change in not only the regulations that exist and additions to those regulations, but the scrutiny under which firms that operate are put by the regulators themselves. And that just has increased the workload relative to and all of our jurisdictional operations. When you layer on top of that, the fact that we expanded into a new jurisdiction in Luxembourg, we've had to add some capabilities and talent there.
The first thing I have said in the first call. It 18 months ago and the team has done an excellent job as I mentioned on the call. We have some losses that were announced.
Last couple of years that we've had to absorb and Sanjay and the team has done a terrific job for new sales increased revenue to continue to smooth that trajectory and drive those margins higher.
Dennis McGonigle: And then when you wrap it all up with the combination of who we hire and who are kind of in full-time roles, and then the use of outside professionals to help guide us as we sort through some of the regulatory changes that have occurred. That drives us some of our costs. Finally, in certain jurisdictions, we've been able to operate at a different type of leverage with using talent in certain jurisdictions to support the requirements in other jurisdictions.
Not deviating from the previous stance that that business is going to get back to historical margins over the next few years.
Okay.
Thanks I appreciate it.
Brian just to close the loop one of those losses that we had talked about.
Probably closer to the year is still not matriculated off.
And I think on last call, we talked about potentially by the end of the third quarter and now we're in the kind of range of sometime in the fourth quarter.
There is still they.
They haven't left us.
So we'll see how that plays out but that's one of the one of the things that the private banking business, we will have to absorb when it happens the good news is that hasn't happened yet.
And that's always a positive.
The other comment.
It didn't make but you can give color if you're interested we just finished two days or three days with.
A large group of our both trust 3000, and SVP clients Hereon on campus.
We can only think that getting them in the room together and hearing the stories and the positive stories about being on SVP.
Dennis McGonigle: Well, what's happened is almost every jurisdiction now requires that talent to be local. And that's also added to our personal requirements and cost increases. God, it thanks a lot. I appreciate it. It's a regulatory employment program. I call it. Okay.
Dennis McGonigle: Thanks a lot, Dennis.
Both technologically and operationally.
Just.
To help encourage more towards retail and clients like the one that made the decision to convert in the third quarter.
Make that decision so really successful.
Two five days of sessions with our broad banking client base.
Ryan Kinney: All right, Oliver. And we'll go over to the line of Ryan Kinney, Morgan Stanley.
Thank you Derek Thank you.
Ryan Kinney: Let's go ahead. Hey, good afternoon. Thanks for taking my questions.
Okay.
And we'll go over to Christian.
Ryan Hicke: A couple of questions. First, you mentioned migrating a large chunk of the private bank's book to SWP this quarter. Any update on where that leaves Trust 3000 and should we expect any change in strategy on how long you plan to keep that asset up and running or how you plan to manage the Trust 3000 system? Yeah, I'll take that first and then kick this on, Jay Ryan. Hope you're doing well. So right now that does not change our strategic plan because we have clients that are happy on Trust 3000.
Piper Sandler. Please go ahead.
Thanks, Brian I appreciate you taking my questions.
Firstly are you could give a little more color on the client losses in the quarter and the investment.
<unk> institutional investor segments, any key reasons, they're pulling out of the ordinary or anything that you can provide I would call out there.
So on the institutional investor side.
Give you quick comment and then turn it over to Jay.
Ryan Hicke: What I would say is two things. One, we're probably more proactively engaged right now with those clients trying to understand what that timeline looks like, what those operating models would be and what looks to business. They would be bringing over to SWP. So Sanjay and the team has done a terrific job there. Kind of really increasing the engagement. But the other more important thing with the US bank conversion. And I think Dennis had this in his script is to have that size of an organization operating with the software service model really opens up a different level conversation in the market for Sanjay and the team.
Speak to that business segment.
And then on the investment advisors segment.
We'll comment on that.
The institutional Investor segment is Ryan spoke.
It's still in that.
TB corporate DB space.
Plant closures or annuity <unk> that occur and then also.
We're being more aggressive in the market with retention, we know everybody in the industry across the board there's no hiding from it is under fee pressure.
Ryan Hicke: Around either existing or prospective FBI clients that don't want to outsource the back office that are looking for technology in the service. So this is a really important proof statement and they are really happy where they are right now with this conversion with the successful weekend, the big book of business. And it's one that the market's been watching. So I don't know what you would add to this. Now I would echo the same as well.
The competitive landscape is arguably led by fees.
Versus.
With many competitors and that kind of sets the table and Jay.
Jay and his team.
Paul.
<unk> Hasnt gone anywhere so the institutional businesses.
Still in the owners.
<unk> shoulder help a J.
Ryan Hicke: In terms of strategy for trust 3000 and assignments in that we would we would stay aligned with our clients strategy. You could look at the oral trust 3000 business in two different segments. Our large clients who are in software service model. They're closely watching how we are implementing US bank and and that is going very successfully. And the second segment you can look at the clients we are running in an outsource to office model.
It's been trying to keep these client keep our clients addressing their economic requirements, but at the same time, making smart long term relationship decisions. Joe you want to since it's early days you want to sure. Thank you Dennis.
Well, it's certainly not a new phenomenon that the primary objective of these pension plan sponsors is ultimately to obtain full funding what is relatively new those the past few years, you've had a historic full market and now you have a run on rising rate environment, which means there's a greater opportunity for plant two in <unk>.
Ryan Hicke: And that's where we are actively engaging with our clients and as and when they are coming up for a new home. We are working with them to move them to as WP. But it's not a poor smart. Thanks.
I believe around 30% of firms in the industry right now are exploring our risk transfer strategy. So that's removing the liability and risk from the pension via either the purchase of a group annuity or offering a lump sum window.
Ryan Hicke: And then just as a follow-up, definitely appreciate the efforts to get the private banking margins towards higher profitability. It looks like you've started to make some progress there with margins moving from low single digits to looks like now high single digits. Is that the right range going forward? And as you put together all the piece parts of the SWP migration and expense management, is there any update on what margin level you'd be happy with?
We are aware of these market realities and some of the recent organizational changes that we've made are going to better position us to aggressively compete in OCI growth markets going forward. Your CIO market in general is growing and we've seen more and more large panel plants exploring like the virtues of outsourcing Chief investment officer.
Ryan Hicke: So I think Ryan, this is one we've been really consistent. The team is continuing to extend the plan to continue to grow those margins and to do that incrementally quarter over quarter, either through the combination of revenue, installation and revenue increase your sales and continued expense management. So I mean, we are really focused on that. We don't plan to deviate from that plan to continue to grow those margins moving forward. That's probably the first thing I said in the first call, 18 months ago, and the team's done an excellent job.
Sei's standing as a market leader in that space, our seamless integration of technology operational and investment expertise I think are going to enable us to win moving forward.
Thanks, I appreciate all the color there and then.
Theres definitely been plenty of volatility recently.
Especially with rates and fixed income can you talk a little bit about how that impacted you in the institutional investor segment or any others at times like these because they drive the end clients and potential clients to be more inwardly focused which can dampen activity over the near term or in mondi discussions or taking that actually spur new com.
Ryan Hicke: As I mentioned on the call, we have some losses that were announced over the last couple of years. We got absorbed in the signed data team. It's done a terrific job through new sales, increased revenue to continue to smooth that trajectory and drive those margins higher. But we're not deviating from the previous stance that that business is going to get back to historical margins over the next few years. Thanks, appreciate it.
<unk> with <unk>.
Clients.
<unk>.
You mean in the <unk>.
Context of the calculation of their future liability streams and they are funded status.
Yes, yes exactly.
Jay do you want to.
Yes, I think part of that goes into the fact that many of them are exploring the opportunity now in that rising rate environment too.
Ryan Hicke: And Ryan, just to close the loop, one of those losses that we had talked about for probably close to a year has still not matriculated off. And I think on the last call, we talked about potentially by the end of third quarter, and now we're in the kind of range of sometime in the fourth quarter, but they're still, they haven't left us. So we'll see how that plays out, but that's one of the things that the private banking business will have to absorb when it happens.
Purchase a group annuity or offer a lump sum.
I think overall, though when you look at this marketplace. I think this is a market that really crave specialization, so whether it's health care higher education corporate DB Union plans, I think our prospects really demand.
<unk> expertise and our advice and service around this so anytime there's a change like that happened in the marketplace. I believe it does open the opportunity for us to sit down and have those advice conversations about how the market realities are affecting their goals and objectives and the allocation that we've put out there we see those opportunities not only has the ability.
Ryan Hicke: The good news is that the napkin yet, and that's always a positive. The other comment that Sanjay did make, but he can give color if you're interested. He just finished two days or three days with a large group of our folks. There's a couple of trust 3000 and two people clients here on campus. And we can only think that getting them in the room together and hearing the stories and the positive stories about being on SWP, but technologically and operationally, we just, you know, help encourage more trust 3000 clients like the one that made the decision to convert in the third quarter, make that decision. So it's really successful. Two and a half days of sessions with our broad banking client base.
To strengthen our relationship but also to potentially move them into other products that are better for them and better for us long term.
Yes, I would just add on the advisor side, we haven't seen really a big position of cash we've seen a little bit of a spike in cash balances.
That's kind of normal when you see this level of volatility, but there has been.
No movement around away from the strategic portfolio of someone has some excess cash they might be holding it in a money market fund.
Offer very competitive yields there on.
On our flows we've had very strong growth on the <unk> side, the custody platform very strong growth on the SMA the ETF.
Ryan Hicke: Yeah, thank you very much. Thank you.
Crispin Love: And we'll go over to Kristen Love, Piper Sandler. Please go ahead. Thanks. I appreciate you taking my questions. First, are you going to give a little more color on the client losses in the quarter in the investment. Advisors and institutional investor segments, any key reasons there anything out of the ordinary or anything that you can provide or would call out there. So on the institutional investor side, I'll give a quick comment and then turn it over to Jay Cipriano to speak to that business segment.
Strategist program.
We've seen a little bit of continued outflow of the Sci higher fee funds and we knew that so that's part of our business strategy is the kind of sell through that in this environment.
We just also had a conference of 270 advisors, a few weeks ago, unbelievable commentary and receptivity, especially around our applications and our investor portal, our dashboards and our mobile app that we rolled out. So we are getting really really good feedback and we think that that puts us in a well position for growth.
As we move forward into the fourth quarter.
Crispin Love: And then on the investment of visors segment I'll let Paul comment on that. The institutional investor segment is as Ryan spoke, it's still on that, you know, the PV, Cooper DB space, its plan closures or notizations at a car. And then also, you know, we're being more aggressive in the market with retention. We know everybody in the industry across the board, there's no hiding from it is under fee pressure. You know, the competitive landscape is arguably led by fees, you know, versus, you know, with many competitors and that kind of sets the table.
I appreciate all the color that's it for me.
And we'll go over to Nick Fine.
Over to Mike Brown.
<unk>. Please go ahead.
Great.
Good evening.
Hey, Mike.
Hey, I wanted to start with.
Maybe a follow up comment on the margin it looks like year to date, you're running just below 23% and that's just kind of below your historical mid to high 20% range. So.
I know that you guys really focus on R&D spending.
Managing for the longer term here, but if I have to think about.
Crispin Love: And Jay, Jay and his team, you know, and with Paul, you know, Paul hasn't gone anywhere. So the institutional business is still on his left shoulder, you know, helping Jay, you know, it's been trying to keep these client, keep it at the same time, making smart long-term relationship decisions. I don't know, Jay, you want to, to destroy these, you want to? Sure. Thank you, Dennis. Well, it's certainly not a new phenomenon that the primary objective of these pension plan sponsors is ultimately to gain full funding.
An environment that could.
Get even more challenging from here.
Does your body, where does your margin really kind of bottom out and what are the levers at your disposal here to protect the margin and of course I. Appreciate that there was some right sizing actions in the quarter. So youre not standing by idly, but just trying to think through what's at your disposal if things stay.
Worse from here.
Sure So just.
I guess, what I can use as first use some historical reference.
Last time, we've been through this type of difficult market cycle.
Crispin Love: What is relatively new, those the past few years, you've had a historical full market and now you have a run on rising rate environment, which means there's a greater opportunity for plans to inuatize. We believe we're around 30 percent of firms in the industry right now are exploring a risk transfer strategy. So that's removing the liability and risk from the pension fee, either the purchase of a group of nudity, or offering a lump sum window.
Where the market cycle.
Our highest margin business at that time.
Are we close between the advisor business institutional business.
The advisor business and this is without Sci take it any drastic measures in terms of head count or cost reductions, but really running the business as is.
Crispin Love: We're aware of these market realities and some of the recent organizational changes that we've made are going to better position us to aggressively compete in OCIO growth markets going forward. The OCIO market in general is growing and we've seen more and more large plans exploring like the virtues of outsourcing chief investment officer. So SEI standing as a market leader in that space, our seamless integration of technology, operational and investment expertise, I think are going to enable us to win moving forward.
That business the margins bottomed out went from about high <unk> to high <unk>.
The institutional business one from a similarly high forty's.
<unk> bottomed out around.
Maybe high Thirty's.
40% margins, so the asset management more direct asset management business as the margins held up really well.
Obviously compressed but.
It spoke to our operating model our business model.
Our capabilities there.
On the banking side and on the IMS side, which are more operational businesses the pricing.
Crispin Love: Thanks. I appreciate all the color there and then there's definitely been plenty of volatility recently, especially with race and fixed income. Please talk a little bit about how that's impacted you in the institutional investor segment or any others. At times like these does it drive the end clients and potential clients to be more inwardly focused, which can dampen activity of the near term or elongate discussions or taking it actually spur new conversations with current clients and new potential ones.
As a little bit less impacted.
But we do get some variability because of markets, it's hard to run away from those types of extreme markets.
IMS for example, the mix of business.
Is very diverse so it's not as directly correlated to market activity. So there there was some margin compression, but it wasn't as severe plus with breakpoint pricing. The first assets you would lose.
Crispin Love: Give me in the context of the calculation of their future liability streams and their funded status. Yes. Yeah, exactly. Jay, do you want to? Yeah, I think part of that goes into the fact that many of them are exploring the opportunity now in that rising rate environment to purchase of group annuity or offer a lump sum. I think overall, though, when you look at this marketplace, I think this is a market that really craves specialization.
In down markets or the lower priced assets relative to most client contracts. So.
There is a little bit of buffer in that.
And banking similarly, we have revenue streams that are not.
<unk> not tied to assets or account based or transactional activity base.
In times of market stress those things tend to obviously do a count numbers, but activity goes up so there is some.
Protection there.
But I will say in the banking side, we did take some margin hit.
But it was principally because we use it as an opportunity to re contract with clients extend relationships helped them deal with the financial distress. They were under so gave them some temporary relief with the trade off of a more longer term partnership like relationships. So.
Crispin Love: So whether it's healthcare, higher education, corporate D.V, union plans, I think our prospects really demand demand expertise and our advice and service around this. So anytime there's a change like that happened in the marketplace, I believe it does open the opportunity for us to sit down and have those advice conversations about how the market realities are affecting your goals and objectives and the allocation that we've put out there. We see those opportunities not only as the ability to strengthen a relationship but also to potentially move into other products that are better for them and better for us long-term.
With all that said, we do have some costs that are variable so we.
Sub advisor expenses.
Direct expense on our P&L that certainly would contract.
Our variable part of compensation.
Did make some.
Crispin Love: Yeah, I would just add, on the advisor side, we haven't seen really a big position of cash, we've seen a little bit of spike in cash balances. That's kind of normal when you see this level of volatility, but there has been, you know, kind of no movement around away from the strategic portfolio, if someone has some excess cash, they might be holding it in a money market fund. We offer very competitive yields there.
Decisions to adjust that.
But we were one of the few financial services firms.
Period, and I'm, not making any future commitments here, but one of the few financial services firms in the periods that actually paid incentive compensation through that cycle. It wasn't at a 100% of our normal but it was.
Fairly healthy other than the executive team the executive team made a decision that.
Crispin Love: On our flows, we've had very strong growth on the AEW side, the custody platform. Very strong growth on the FMA, the ETF, the strategist program, and we've seen a little bit of continued outflow of the SDI higher fee fund, but we knew that. So, you know, that's part of our business strategy is to kind of sell through that in this environment. We just also had a conference of 270 advisors a few weeks ago, unbelievable commentary and receptivity, especially around our applications and our investor portal, our dashboards and our mobile app that we rolled out.
We would not.
Ill take that variable comp as part of our.
In that period so.
And then we did use it.
Most things.
Probably the first time, we ever cleaner erratic as when Youre moving.
So we use it as an opportunity to clean up some things that needed to be cleaned up anyway, and should have been cleaned up kind of a normal course of business, but.
Gave us I'd say, a little bit higher incentives.
To act on it and we did get some cost take out from that but we also invested money in client facing activities.
Crispin Love: So, we are getting really, really good feedback, and we think that that puts us in a well-position for growth as we move forward into the fourth quarter. Thank you. Appreciate all the color. That's it for me. Okay.
We leaned into our clients will go more on the client service side, we did not slow down our R&D initiatives and we certainly put them under more scrutiny, but we actually spent more capital and R&D during that <unk> nine periods and we had spent kind of the old 607 period.
Crispin Love: And we'll go over to the next slide.
Mike Brown: Go over to Mike Brown with KBW. Please go ahead. Great.
Dennis McGonigle: Good evening. Hey, Mike. Hey, I wanted to start with just maybe a follow-up comment on the margin. It looks like you're the date you're running just below 23%, and that's just kind of below your historical mid to high 20% range. So, I know that you guys really focus on R&D spending and you're managing for the longer term here, but if I have to think about an environment that could get even more challenging from here, where does your margin really kind of bottom out?
We really felt that we have a really strong financial foundation, we have vary.
Dennis McGonigle: And what are the levers at your disposal here to protect the margin? And I, of course, appreciate that there were some right sizing actions in the quarters. You're not standing by idly, but just trying to think through what's at your disposal if things stay or get worse from here.
Effective business models.
We are very.
Scrutinizing around making sure we don't sacrifice the long term and what we're really all about which is long term strategic growth and value just.
Just because of some short term.
Pressures.
And I would say, we would probably operate in a very similar fashion.
Okay, great. Thanks for all the historical perspective, there Dennis.
Yeah, and then maybe just.
Just kind of quickly lining up some of your sales and pipeline commentary and it just looks like some of those metrics are just down.
Over a quarter and so I know that's just one data 0.1 point in time.
Dennis McGonigle: For so, just I guess what I can use is first use some historical reference. The last time we've we've been through this, you know, that type of a difficult market cycle. And during that market cycle, our highest margin business at that time was probably close between the advisor business institutional business. The advisor business, and this is without SEI, you know, taking any drastic measures in terms of head counter cost reductions, but really running the business as is that business, the margins bottomed out and went from about high 40s to high 20s.
You certainly talked about a number of key investments and you sound upbeat about a lot of your initiatives here. So I guess, we just take a step back can you just help me synthesize as to trends and what that ultimately can mean for some of the more near term trends, including activity into year end here.
So I think Mike it's Brian.
If you look at Q3 Q3 was a little bit down relative to Q2 in sales of Q1, and Q2 were really good sales quarters for US Q3 was really impacted on the asset management side, we had another really solid quarter and we expect that to continue if you look at the pipelines in Q4 Q1 of next year as Phil mentioned in <unk>.
Dennis McGonigle: The institutional business went from similarly high 40s and bottomed out around maybe high 30s, 40% margin. So the asset management, you know, more direct asset management businesses, the margins held up really well. Obviously compressed, but It was spoke to our operating model, our business model, and our capabilities there. On the banking side, and on the IMS side, which are more operational businesses, the pricing is a little bit less impacted. We do get some variability because of markets that are going away from those types of extreme markets.
Sanjay mentioned and even Paul and <unk> come out so we feel really good about where we are in our pipeline perspective.
Q3, sometimes you get a little bit of like the summer and things drag on things pushed into Q4.
But really I think Q3 was primarily impacted by what we've just talked about it what Jay went through but yes, Phil already mentioned $19 million quarter project very consistently putting a positive results on the board. So we expect that to continue so.
I also think one of the things that's really hard to predict but one of the leading indicators for us that we're more focused on now that I mean, we are in the path is really that client activity. So as Dennis said, yes, I was going to ask the theater with <unk> 92 clients and Theyre across 53 banks pause to say Paul it around that.
Dennis McGonigle: But in IMS, for example, the mix of business is very diverse. So it's not as directly correlated to market activity. So there there was some margin compression, but it wasn't a severe plus with break point pricing. The first assets you would lose in down markets are the lower price assets relative to most client contracts. So there's a little bit of buffer in that. And banking somewhere that we have revenue streams that are not tied to assets or work account based or transaction or activity based in times of market stress, those things tend to honestly do account numbers, but activity goes up.
Donna with Wayne a few weeks ago at 275, but we are all over the place right now with our clients and the market. The new enterprise sales team is going to help so I get it we understand the rules of the game, we understand the scoreboard we're doing the right thing.
Okay, great. Thanks for taking my questions.
Thank you Mike.
Thank you at this time no further questions in queue back over to CEO Ryan Hickey. Please go ahead.
Thank you as I mentioned, our momentum continued through the third quarter and we made good progress on our strategic initiatives. We're doing the right things we're focused on the right areas.
Dennis McGonigle: So there's some protection there, but I will say in the banking side, we did take some margin hit, but it was principally because we use it as an opportunity to re-contract with clients, extend relationships, help them deal with the financial distress they were under. So gave them some temporary release with the trade off of a longer term partnership like our relationship. So with all that said, we do have some costs that are variable.
Really getting more focus with Wayne and the team on the investment management and asset management side, we're very excited about what we see in the future. There we're enhancing our market presence through increase engage with our clients, we're expanding our reach across markets globally, we need to relentlessly challenge ourselves to improve our execution and drive growth, but we're going to build upon the five.
<unk>, we have in place to drive that growth.
Thank you for joining today's call.
Thank you, ladies and gentlemen that does conclude your conference. We do thank you for joining you may now disconnect.
Dennis McGonigle: So we, you know, sub-advisor expense that's a direct expense on our P and L. That certainly would contract our variable part of compensation. We did make some decisions to adjust that. But we were one of the few financial services firms in that period, and I'm not making any future from here, but one of the few financial services firms in that period that actually paid incentive compensation through that cycle. There wasn't that 100% of our normal, but it was fairly healthy. Other than the executive team, the executive team made a decision that we would not take that variable compensation part of our in that period.
Good day.
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Yeah.
Dennis McGonigle: So, and then we did use it, like most things, you know, probably the first time you ever clean out your attic is when you're moving. So we use it as an opportunity to actually clean up some things that needed to be cleaned up anyway and should have been cleaned up kind of a normal course of business. But it gave us, I'd say a little bit higher expense to act on it. And we did get some cost take out from that.
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Dennis McGonigle: But we also invested money in client facing activities. And we leaned into our clients a little bit more on the client service side. We did not slow down our R&D initiatives. And we certainly put them under more scrutiny. But we actually spent more in capital in R&D during that 0809 period than we had spent kind of the old 607 period. So we really felt that we have a really strong financial foundation.
Dennis McGonigle: We have very effective business models. And that we're very... Scrutinizing around making sure we don't sacrifice the long-term and what we're really all about, which is long-term strategic growth and value just because of some short-term pressure.
Dennis McGonigle: And I would say we would probably operate in a very similar fashion. Okay, great. Thanks for all the historical perspectives that are Dennis.
Ryan Hicke: Yeah, maybe just kind of quickly lining up some of your sales and pipeline commentary, and it just looks like some of those metrics are just down quarter to quarter. And so I know that's just one data point, one point in time. And you certainly talked about a number of key investments, and you sound up beat about a lot of your initiatives here. So I guess we just take a step back. You just helped me synthesize those two trends and what that ultimately can mean for some of the more near-term trends, including activity into your end here.
Ryan Hicke: So I think Mike Hitchbrien, I mean, if you look at Q3, Q3 was a little bit down relative to Q2 in sales, but Q1 and Q2 were really good sales quarters for us, Q3 was really impacted on the asset management side. We had another really solid quarter, and we expect that to continue if you look at the pipeline to Q4, Q1 of next year. Phil mentioned and Sanjay mentioned and even Paul and Jay which come out.
Ryan Hicke: So we feel really good about where we are in a pipeline perspective. Q3, sometimes you get a little bit of like the summer and things drag on, things push into Q4, but really I think Q3 was primarily impacted by what we've just talked about when Jay went through. Phil already mentioned and 19 million dollar quarter. Sanjay is very consistently put in positive results on the board. So we expect that to continue.
Ryan Hicke: So I also think one of the things, it's really hard to predict, but one of the leading indicators for us that we're more focused on now than anywhere in the past is really that client activity. So it's then it says, I was in the end of the theater, signed in there, 92 clients in there across 53 banks. Paul is saying Paul and I were out in Arizona with Wayne a few weeks ago, there's 275.
Ryan Hicke: I think we are all over the place right now with our clients in the market. The new enterprise sale team is going to help. So I get it. We understand the rules of the game. We understand the scoreboard. We're doing the right thing.
Ryan Hicke: Okay, great. Thanks for taking my questions. Thank you.
Ryan Hicke: At this time, no further questions in Q back over to CEO Ryan Hicky. Please go ahead. Thank you.
Ryan Hicke: As I mentioned, our momentum continued through the current third quarter and we made good progress on our strategic initiative. We're doing the right thing. We're focused on the right areas. I'm personally getting more focused with Wayne and the team on the investment management and asset management side. We're very excited about what we see in the future there. We're enhancing our market presence through increased engagement with our clients. We're expanded our reach across markets globally. We need to relentlessly challenge ourselves to improve our execution and drive growth. What we're going to build upon the foundation we have in place to drive that growth.
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Unknown Executive: Ladies and gentlemen, that does conclude your conversation. We do thank you for joining.
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Unknown Executive: [inaudible] Michael Brown, Paul Klauder, James Cipriano, James Cipriano, James Cipriano, James Cipriano, Michael Brown, Paul Klauder, James Cipriano, James Cipriano, James Cipriano, Michael Brown, Paul Klauder, James Cipriano, James Cipriano, James Cipriano,[inaudible] James Cipriano, James Cipriano, James Cipriano, James Cipriano,[inaudible] James Cipriano,[inaudible] James Cipriano, James Cipriano, James Cipriano, James Cipriano[inaudible] James Cipriano, James Cipriano, James Cipriano, James Cipriano, James Cipriano,[inaudible] James Cipriano, James[inaudible] Ladies and gentlemen, thank you for standing by and welcome to the SEI Third Quarter 2023 Earnings Call. At this time, our participants are on a listen-only mode. Later, we welcomed up the question and session instructions will be given at that time. As a reminder, today's call has been recorded.
Ladies and gentlemen, thank for standing by and welcome to the F. C. I third quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, today's call is being recorded.
Now I'll turn the call over to your host director of Investor Relations, Alex Whiting them. Please go ahead Sir.
Thank you and welcome everyone. We appreciate you for joining us today for our third quarter 2023 earnings call on the call we have Ryan Hickey.
Chief Executive Officer, Dennis Mcgonigle, Chief Financial Officer, and leaders of our business segments Wayne Withrow, Paul Clowder, Joseph Rihanna, Phil Mccabe, Sanjay Sharma and snapshot before.
Before we begin I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at <unk> Dot com.
This call is being webcast live and a replay will be available on the events and webcast page of our website.
We would like to remind you that during today's presentation and in our responses to your questions. We have and will make certain forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Please refer to our notices regarding forward looking statements that appear in today's earnings press release and in our filings with the Securities and Exchange Commission we.
We do not undertake to update any of our forward looking statements with that I will turn the call over to CEO, Ryan Hickey Ryan Thanks, Alex Hello, everyone and thank you for joining us despite a challenging market environment, we delivered solid results for the third quarter with quality top line and earnings growth.
As I laid out at last year's Investor Day, we are surgically focused on the following areas.
Growing our sales results and segments and markets, where we believe we can repeatedly win.
We are seeing that play out with investment managers regional community banks, UK private client investment managers and larger ria's.
Adding talent and capital to enhance internal insight with outside perspective, and launching more organic and acquired new businesses for future revenue generation and growth.
We're focused on investing in automation AI and alternatives to drive scale and service excellence and continuing to deliver long term earnings growth driven by revenue and enhanced with smart expense management.
We are proud of our momentum as we are executing our long term growth strategy, while managing our company for profitability I'm excited about what we see ahead, knowing we are not satisfied or complacent, we will keep executing and innovating.
Turning to Q3 results.
Revenues in the third quarter were $477 million.
Up 1% from a year ago net income for the quarter was $116 million.
Yes with 87.
Keep in mind that our third quarter results for 2022 were impacted by a onetime expense related to our voluntary separation program.
Absent this expense this year's third quarter EPS increased by 10.
We're 13% year over year on a comparable basis.
Dennis will provide more details on our results.
In the quarter, we repurchased one 4 million shares of MSCI stock at an average price of $61 43 per share that translates into $86 million of stock purchases.
The sales success, we've had throughout the year in our technology and operational outsourcing businesses continued in the third quarter.
We remain focused on generating more higher quality touch points with clients building out our pipeline and broadening our client relationships through cross sales. We also launched our enterprise sales group this quarter to increase activity across larger wealth management firms. We believe these efforts are positioning us well to capitalize on future growth.
<unk> and increased sales.
Net sales events in the quarter totaled $14 5 million $11 $1 million of which were net recurring.
This was a combination of technology and operational outsourcing sales of $22 3 million.
Offset by negative activity in our asset management businesses.
With that let me turn to our business lines.
Our investment managers business had another good quarter, delivering strong revenue and earnings growth.
The team implemented and converted new clients and funds, while managing expenses well and growth continues for this segment our constant focus on our strategic clients resulted in a number of cross sell of that and client re contracts in the quarter.
We are really excited to see that we are winning across alternatives traditional and global segments.
And alternatives, our largest clients continue to expand in the private credit private equity real estate and infrastructure markets.
During the quarter, we on boarded two firms through competitive takeaways and won a highly competitive new bid.
Globally. We also continue to see strong flows from existing relationships and we have expanded our sales leadership and client service functions on the ground to enhance our pipeline development.
And the traditional business, we are seeing a trend with our larger clients who are beginning to launch alternative funds. This provides significant opportunity for spi.
We are also seeing continued increased interest in our CIP platform.
Next private banking drove another solid quarter, signing three deals in re contracting five clients. The team also successfully delivered on their backlog implementing five clients on the <unk> platform, representing more than $15 million in recurring revenue from the backlog.
Alexander Whitelam: I will now turn a call over to your host, Director Investor Relations, Alex Whitelam. Please go ahead, sir. Thank you and welcome everyone. We appreciate you for joining us today for our third quarter 2023 Earnings Call. On call, we have Ryan Hicke, SEI's Chief Executive Officer, Dennis McGonigle, Chief Financial Officer, and leaders of our business segments, Wayne Widthrow, Paul Klauder, James Cipriano, Phil McCabe, Sanjay Sharma, and Snashaw. Before we begin, I'd like to point out that our earnings press release can be found under the Investor Relations section of our website at SEIC.com.
During the quarter, we migrated more than 115000 accounts and approximately $360 billion in assets, including our substantial both from U S Bank moving from Trust 3000, USW pain, and Cibc's converged into ex WP from competitive platforms.
We also advise a large multi hospital solution, which is generating broad interest with both our existing and prospective client base.
Alexander Whitelam: This call is being webcast live and a replay will be available in the events of webcast page of our website. We would like to remind you that during today's presentation, and on our response to your questions, we have and will make certain forward-looking statements that are subject to risks and uncertainties that may cause actual results in different material. Please refer to our notices regarding forward-looking statements that appear in today's earnings press release and in our filing with the Securities and Exchange Commission. We do not undertake to update any of our forward-looking statements.
The private banking business continues to move forward by capitalizing on our expanding pipeline and prudently managing expenses, while we still have some previously announced events to absorb in coming quarters. We are confident in our margin growth strategy for the business that we have discussed on previous calls move.
Moving to our global asset management business investment advisors had net positive cash flows of approximately $612 million.
Ryan Hicke: With that, I'll turn the call over to CEO, Ryan Hicke. Ryan? Thanks, Alex. Hello, everyone, and thank you for joining us. Despite a challenging market environment, we delivered solid results for the third quarter, with quality, top line, and earnings growth. As I laid out at last year's Investor Day, we are surgically focused on the following area. Growing our sales results in segments of markets where we believe we can repeatedly win. We are seeing that play out with investment managers, regional and community banks, UK private client investment managers, and larger RIAs.
Primarily driven by our separately managed account strategist partner solutions and open architecture technology and custody that support advisor driven investment flexibility.
The team is executing on our growth plan for the business and we are focused on driving more revenue growth to capitalize on the robust opportunity set that we see within the intermediary space.
We've also continued to enhance our solutions for this business, including Sci connect to provide a front office digital collaborative wealth management experience for advisors and their end clients.
All new advisors benefit from the enhanced investor portal, and we're seeing solid adoption across the entire client base.
Ryan Hicke: Adding talent and capital to enhance internal insight with outside perspective and launching more organic and acquired new businesses for future revenue generation and growth. We're focused on investing in automation, AI, and alternatives to drive scale and service excellence and continuing to deliver long-term earnings growth, driven by revenue and enhanced with smart expense management. We are proud of our momentum as we're executing our long-term growth strategy while managing our company for profitability.
We're also advancing our efforts to build out custody capabilities for alternative assets.
Finally, we launched our liquid alternative strategy in our U S Fund complex, we expect to see this fund we expect to sell this fund standalone for the time being and we will include it in models offered to advisors early next year.
All of this is another step in our initiative to offer models with private asset classes to intermediaries.
Ryan Hicke: I'm excited about what we see ahead. Knowing we are not satisfied or complacent, we will keep executing and innovating, turning to Q3 results. Revenues in the third quarter were $477 million, up 1% from a year ago. Net income for the quarter was $116 million. EPS was 87 cents. Keep in mind that our third quarter results for 2022 were impacted by a one-time expense related to our voluntary separation program. Absent this expense this year's third quarter EPS increased by 10 cents or 13% year-over-year on a comparable basis.
We believe these enhanced solutions are poised to attract more advisers, especially in the RA space, which we've highlighted as a particular area of growth for us in the future.
And the institutional investors segment, we experienced a more challenging environment, but we're working to drive greater revenue and profitability for that business.
Defined benefit curtailments in annuity stations continue to be headwinds in the UK and the U S.
Given expectations that these headwinds will persist in 2024, we proactively took some steps during the quarter to strategically align our resources and position the business for long term success.
Ryan Hicke: Denison will provide more details on our results. In the quarter, we repurchase 1.4 million shares of FCI stock at an average price of $61.43 per share. That translates into $86 million of stock purchase. The sales success we've had throughout the year in our technology and operational outsourcing businesses continue in the third quarter. We remain focused on generating more higher quality touch points with Klein, building out our pipeline and broadening our client relationships through CrossFail.
We remain focused on managing expenses appropriately, but also improving engagement with our clients and utilizing our enterprise wide approach to meet our clients, where they want to be met.
We are confident that our upcoming acquisition of an additional master trust structure in the U K, we will advance our competitive footing across all institutional segments in that market.
As the market leader, we are committed to competing and winning across the institutional landscape.
Turning to our investments in new business segment, we continue to assess our market offerings and the best path forward to enhance growth. We are pleased with the progress and expect future success and finally, our partnership with LSP remains strong.
Ryan Hicke: We also launched our enterprise sales through this quarter to increase activity across larger wealth management firms. We believe these efforts are positioning us well to capitalize on future growth opportunities and increase sales sales. Next sales events in the quarter total 14.5 million 11.1 million dollars of which were net recurring. This was a combination of technology and operational outsourcing sales of 22.3 million dollars offset by negative activity in our asset management businesses.
On the talent and culture front, we've made strategic investments throughout the year that continue to enhance <unk> brand awareness and drive employee engagement.
This concludes my prepared remarks, I will now turn it over to Dennis to discuss our financial results for the quarter Dennis.
Thanks, Brian.
Ryan mentioned EPS for the quarter was 87.
Ryan Hicke: With that, let me turn to our business lines. Our investment managers business had another good quarter delivering strong revenue and earnings fraud. The team implemented and converted new clients and funds while managing expense as well and growth continues for this segment. Our constant focus on our strategic clients resulted in the number of CrossFail events and client recontracts in the quarter. We are really excited to see that we are winning across alternatives traditional and global segments.
This compares to <unk> 45 during the third quarter of 2022, and <unk> 89 for the second quarter of 2023 Rev.
Revenue for the quarter was $477 million.
Compared to $471 million in 2022 and $489 million in the second quarter.
Total expenses for the quarter were $368 million, which compares to $420 million last year and $376 million in the second quarter.
Ryan Hicke: In alternatives, our largest clients continue to expand in the private credit, private equity, real estate and infrastructure markets. During the quarter, we onboarded two firms through competitive takeaways and won a highly competitive new bid. Globally, we also continue to see strong flows from existing relationships and we have expanded our sales leadership and client service functions on the ground to enhance our pipeline development. In a traditional business, we are seeing a trend with our larger clients who are beginning to launch alternative funds.
On the sales front, and our technology and investment processing businesses of private banking and investment managers net sales events totaled $22 3 million and are expected to generate $19 million in recurring revenue.
In our asset management related businesses net sales were approximately negative $7 6 million, primarily due to losses and repricing in our institutional business.
Total net sales were $14 7 million of which $11 4 million is recurring.
Ryan Hicke: This provides significant opportunity for SDI. We are also seeing continued increased interest in our CIC platform. Next, private banking drove another solid quarter, signing three deals and recontracting five clients. The team also successfully delivered on their backlog, implementing five clients on the SDI wealth platform, representing more than 15 million dollars in recurring revenue from the backlog. During the quarter, we migrated more than 115,000 accounts in approximately $360 billion in assets, including a substantial book from US bank moving from trust 3000 to SWP and CIDC's conversion to SWP from competitive platforms.
Private banking sales were $3 3 billion of which $2 1 million is recurring.
This reflects three new SVP sales, a new clients Sci a previously lost clients decided to stay with Sci and an added book of business due to a client acquisition.
We re contract with five clients during the quarter, representing $7 million in annual recurring revenue.
Ryan Hicke: We also provide with our multi-custy solution, which is generating broad interest with both our existing and prospective client base. The private banking business continues to move forward by capitalizing on our expanding pipeline and prudently managing expenses. While we still have some previously announced events to absorb in coming quarters, we are confident in our margin growth strategy for the business that we have discussed on previous calls. Moving to our global asset management business, investment advisors had net positive cash loads of approximately $612 million.
<unk> banking segment's focus on the regional community banks.
All of the <unk> segment in the U K paying off.
During the quarter, we were active with client implementations and conversions as Ryan mentioned.
This includes a large book of business with CIBC.
First financial and a significant business migration for U S Bank <unk> Trust REIT to.
The west of E&P, helping solidify our SVP SaaS solution as market ready.
The current backlog of sold but expect it to be installed revenue in the next 18 months is $21 5 million.
Asset management revenues in private banking were up slightly from the second quarter.
Expenses in the quarter were down from the second quarter of 2023, reflecting the efforts by Sanjay and the team to bring private banking back to higher levels of profitability.
Ryan Hicke: Primarily driven by our separately managed accounts, strategist partner solutions, and open architecture, technology and custody that support advisor driven investment flexibility. The team is executing on our growth plan for the business, and we are focused on driving more revenue growth to capitalize on the robust opportunity set that we see within the intermediary space. We've also continued to enhance our solutions for this business, including SEI Connect to provide a front office digital collaborative wealth management experience for advisors and their end clients.
On the investment managers front net sales for the quarter were $19 million $16 8 million of which is recurring.
During the quarter, we re contracted five clients totaling $9 million in annual recurring revenue.
Revenue for the quarter was up compared to the second quarter, reflecting the impact of client installs.
Expenses were essentially flat or.
Our backlog of sold but expected to install in the next 18 months recurring revenue is $34 million.
Ryan Hicke: All new advisors benefit from the enhanced investor portal, and we're seeing solid adoption across the entire client base. We're also advancing our efforts to build out custody capabilities for alternative assets. Finally, we launched our liquid alternative strategy in our US fund complex. We expect to sell this fund standalone for the time being, and we'll include it in models offered to advisors early next year. All of this is another step in our initiative to offer models with private asset classes to intermediaries. We believe these enhanced solutions are poised to attract more advisors, especially in the RIA space, which we've highlighted at the particular area of growth for us in the future.
We're investment advisors net cash flow onto our platform was a positive $612 million, we experienced increased flows into our newer strategic asset management solutions and platform only programs and negative flows run more mature mutual fund products.
Our comprehensive offering is key to us moving the business forward.
Revenues for the quarter were up from second quarter due to improved capital markets during the second quarter.
Set by third quarter capital markets and the product mix of flows.
Expenses were flat.
We recruited 57, new advisors during the quarter eight of which are in the newer RIAA channel.
Ryan Hicke: In the institutional investor segment, we experience a more challenging environment, but we're working to drive greater revenue and profitability for that business. Corporate defined benefit curtailments and annuitations continue to be headwinds in the UK and the US. Given expectations that these headwinds will persist in 2024, we proactively took some steps during the quarter to strategically align our resources and position the business for long term success. We remain focused on managing expenses appropriately, but also improving engagement with our clients and utilizing our enterprise wide approach to meet our clients where they want to be met.
In the institutional investors segment net sales events for the quarter were negative $5 8 million.
Reflecting positive client signings offset by losses in re pricing and client retention activities.
Revenues for the quarter were down $4 7 million.
Due to net client asset losses.
Expenses were also down $5 5 billion, reflecting general expense management and a onetime item in the second quarter of $4 5 million.
And the investments in new business segment revenues expenses were up slightly compared to second quarter and will remain in this range.
Ryan Hicke: We are confident that our upcoming acquisition of an additional master trust structure in the UK will advance our competitive footing across all institutional segments in that market. As a market leader, we are committed to competing and winning across the institutional landscape.
In addition to the segments. The company also incurred a $2 $2 million expense item related to severance as a result of organizational changes principally in our institutional business.
We've made adjustments to the workforce to align our talent and resources to the opportunities in the segments we serve.
Ryan Hicke: Turning to our investments in new business segment, we continue to assess our market offerings and the best path forward to enhance growth. We are pleased with the progress and expect future success. And finally, our partnership with LSB remains strong. On the talent and culture front, we've made strategic investments throughout the year that continue to enhance SDI's brand awareness and drive employee engagement.
While this will result in run rate savings, we expect to redeploy these savings by expanding our sales resources and growing institutional markets and increasing our distribution efforts around alternative assets.
This expense is reflected in overhead on our press release.
Dennis McGonigle: This concludes my prepared remarks. I will now turn it over to Dennis to discuss our financial results for the quarter. Dennis. Thanks Ryan. As Ryan mentioned, EPS for the quarter was 87 cents. This compares the 45 cents during the third quarter of 2022 and 89 cents for the second quarter of 2023. Revenue for the quarter was 477 million dollars compared to 471 million in 2022 and 489 million in the second quarter.
<unk> produced $29 9 million in profit during the quarter. This compares to $32 7 million during the second quarter <unk>.
Revenues for <unk> were $102 2 million compared to $108 8 million in the second quarter.
Third quarter revenues included $9 million of performance fees.
<unk> record of performance fees of $12 7 million during the second quarter performance fees are a reflection of continued positive relative performance.
Dennis McGonigle: Total expenses for the quarter were 368 million dollars, which compares the 420 million last year and 376 million in the second quarter. On the sales front, in our technology and investment processing businesses, a private banking and investment managers, net sales events totaled 22.3 million and are expected to generate 19 million in recurring revenue. In our asset management related businesses, net sales were approximately negative 7.6 million primarily due to losses and reprising in our institutional business.
One final item as we've mentioned in July we entered into an agreement to acquire the National pension Trust. The transaction is expected to close before year end subject to applicable regulatory approval.
I point, you to our 10-Q for more information.
Our tax rate for the quarter was 22, 5%, we expect a slight step down in.
The tax rate in the fourth quarter.
That concludes my remarks, all of our unit heads are on the call and we're happy to take any questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
Dennis McGonigle: Total net sales were 14.7 million of which 11.4 million is recurring. Private banking sales were 3.3 million of which 2.1 million is recurring. This reflects 3 new SDP sales, a new client SEI, a previously lost client deciding to stay with SEI, and an added book of business due to a client acquisition. We re-contracted 5 clients during the quarter representing 7 million dollars in annual recurring revenue. The private banking segments focus on the regional community banks along with the PCIM segment in the UK paying off.
They remove yourself from the queue at any time by repeating the London zero commands.
The first line.
Low Oppenheimer. Please.
Please go ahead.
Thank you for taking my question.
I think you highlighted that the strength of investment managers on logo, great. But can you. Please take a look at.
A deeper because it grew nicely year over year margin has been expanding I'm. Just wondering if you can talk more about the dry bulk of stream the healthiness of the arts firms and traditional asset managers.
Any any pocket that you are targeting mostly in quality and market. Thank you.
Dennis McGonigle: During the quarter we were active with client implementations and conversions, as Ryan mentioned. This includes a large book of business with CIBC, First Financial, and a significant business migration for US bank on trust 3000 to SDP helping solidify our SDP sad solution as market ready. The current backlog of sold but expected to be installed revenue in the next 18 months is 21.5 million dollars. As that management revenues and private banking were up slightly from the second quarter.
Yes, that's a great question I hope you're doing well I'll take the first stab and then I'll turn it over to Phil to maybe provide some more color.
So if you think about the overall market opportunity we have today and why I think we continue to drive growth. One is we are really focused on premium levels of service to our client base and that has really paid dividends for us as clients are launching new funds. We are winning the lion's share of those funds and we stay very very focused on the level and quality of <unk>.
Service to those clients.
We've continued to deploy more talent and capital in the technology space to enhance our offering there I think bill can talk a little bit I Wouldnt your point about future growth inside the U S. I think there's just a continued trend and appetite for outsourcing and that positions us well as firms really think about where they should be deploying their capital for growth.
Dennis McGonigle: Expenses in the quarter were down from the second quarter of 2023, reflecting the efforts by Sanjay and the team to bring private banking back to higher levels of profitability. On the investment managers front net sales for the quarter were 19 million dollars, 16.8 million of which is recurring. During the quarter we re-contracted 5 clients, totaling 9 million in annual recurring revenue. Revenue for the quarter was up compared to second quarter, reflecting the impact of client installs.
I see more of that really in product creation Alpha generation and distribution and are really looking to STI as a strategic partner for technology and operational delivery.
And we're really starting to increase our footprint as I mentioned in global fulfill you want to provide a little bit more color. There are certain spots are areas. We're really enthusiastic about not just the existing pipeline, but the future runway in this business.
Dennis McGonigle: Expenses were essentially flat. Our backlog of sold but expected to install in the next 18 months recurring revenue is 30.4 million dollars. For investment advisors, net cash flow onto our platform was a positive 612 million. We experienced increased flows into our newer strategic asset management solutions and platform only programs and negative flows run more mature mutual fund products. Our comprehensive offering is key to us moving the business forward. Revenue for the quarter were up from second quarter due to improved capital markets during the second quarter, all set by third quarter capital markets and the product mix uploads.
Thanks, Ryan and this is Phil Mccabe just real quick the margins came in a little higher this time at $36. Two if you look year to date, they averaged about 35%, which is right about where we said we would be over the course of the year. So so so I expect that number to continue for a little while and.
I think we've spent a lot of time managing expenses at the same time, we're investing in the future on the sales Brian $19 million in net sales if you look at that year.
Year over year for three quarters, we're up about 16%. We are a net number of $61 5 million, so far and as Brian said the pipeline is strong and we.
Dennis McGonigle: Expenses were flat. We recruited 57 new advisors during the quarter, eight of which are in the newer RIA channel. In the institutional investor segment, net sales events for the quarter were negative 5.8 million, reflecting positive client signings all set by losses and repricing in client retention activities. Revenue for the quarter were down 4.7 million due to net client asset losses. Expenses were also down 5.5 million, reflecting general expense management and a one time item in second quarter of 4.5 million dollars.
We're out in the market, we're all over our clients and.
We're getting a lot of traction globally, a lot of traction in the U S. We talked about private credit and real estate and infrastructure before but I think we're in a really really good spot for the future I think the runway is fairly long for what we see out there and I think we're in a really good spot on the only other thing I would say all of which we touched on it.
Based upon its early but.
Yes, there is a big intersection right now growth between kind of the private asset market in the intermediary space and as Phil mentioned.
I think a lot of the traditional investment managers, who are also looking at how they can create and distribute some alternative products and that's a good spot for us as well to really give them the infrastructure to get those things up and running and out in the market quickly to add to that right now.
Dennis McGonigle: In the Investments in New Business segment, revenues and expenses were up slightly compared to second quarter and will remain in this range. In addition to the segments, the company also incurred a $2.2 million expense item related to the severance as a result of organizational changes principally in our institutional business. We made adjustments to the workforce to align our talent and resources to the opportunities and the segments we serve. While this will result in run rate savings, we expect to read-apply these savings by expanding our sales resources in growing institutional markets and increasing our distribution efforts around alternative assets.
The percentage of alternatives within our traditional market is really really small, but we have a major campaign going on now to try to push those products by way of interval funds and auction funds into that market. So I think we.
A lot of traction and we expect to see some good results in the future.
Got it that's Super helpful. And then on the press release, you mentioned I think some of the revenue growth was driven by new products in nutrition those surfaces could you. Please.
Dennis McGonigle: This expense is reflected in overhead on our press release. LSV produced 29.9 million profit during the quarter, this compares to 32.7 million during the second quarter. Revenue for LSV were 102.2 million compared to 108.8 million in the second quarter. Third quarter revenues included 9 million up-performance fees. LSV recorded up-performance fees of 12.7 million during the second quarter. Performance fees are a reflection of continued positive relative performance.
Maybe highlight some of these new products are you taking shares from competitors.
Any more color would be helpful. On these new products. Thank you.
From a competition perspective, we have two or three competitors that are out there but.
Really think that we are.
Our clients are fairly large and sophisticated and theyre not buying based upon.
Getting a better deal or a margin so.
We are getting pretty much almost all of the new funds that are launched with our.
Dennis McGonigle: One final item, as we mentioned in July, we entered into an agreement to acquire the national pension trust. The transaction is expected to close before you're in, subject to applicable regulatory approval. I point you to our 10Q for more information. Our tax rate for the quarter was 22.5%, we expect a slight step down in tax rate in the fourth quarter.
Clients that are out there and from a prospect perspective, when we're in a deal we are usually in the final one or two and we've been doing fairly well closing those books of business. So we have three new clients on the alternative side. So far this year I mean, this quarter and in particular, there's one that we don't really named name.
Was that sort of deal of the year. So far so we're in a good position when we're out in the market our clients are referencing us.
Dennis McGonigle: That concludes my remarks. All of our unit heads are on the call and we're happy to take any questions. Thank you.
Happily and they're glad to do it and we're in a good spot.
Unknown Executive: Ladies and gentlemen, you wish to ask a question. Please press 1.0 on your telephone keypad. You may remove yourself from that queue at any time by repeating the 1.0 command. Go to the first line.
We're winning on a number of different fronts I'm not sure I can pinpoint it to one particular competitor, but I think we are.
We're where we need to be right now.
No.
Owen Lau: Owen Lau, Oppenheimer. Please go ahead. Thank you for picking my question. I think you highlighted the strength of investment managers a little bit. Can you please pick a little bit deeper because it grew nicely over a year. Margin has been expanding. I'm just wondering if you can talk more about the drive of the strength, the healthiness of the odds firms and traditional asset managers. If any pocket that you are targeting or seeing growth in your end market.
Yes.
The new product comment.
And Phil team has done such a great great job of building really strong relationships with our clients in the particularly the clients that continue to grow.
Expand and when they tend to come to market with a new product.
We kind of be in the room when they are designing new products. So that's really what the references to new products, it's our clients launching new products into the market and then leaning on us.
We are there to support them, that's a great point thank.
Owen Lau: Thank you. That's a great question. I hope you're doing well. I'll take the first stab and then I'll turn over to Phil to maybe provide some more color. So if you think about the overall market opportunity we had today and why I think we continued to drive growth. One is we are really focused on premium levels of service to our client base. And that has really paid dividends for us as clients are launching new funds.
Thank you.
Charlie if I can add one more quick one which is on the cost side.
I noticed that basically.
Increase in personal costs and investments I.
I think you had mentioned related to compliance infrastructure to meet new regulatory requirements could you. Please talk about what these new requirements or and I think recurring expense or it's more like one time expense. Thank you.
Owen Lau: We are winning the lion share of those funds and we say very, very focused on the level of quality of service to those clients. We've continued to deploy more talent and capital in the technology space to enhance our offering there. I think Phil can talk on a little bit. I wouldn't hear a point about future growth inside the US. I think there's just a continued trend and appetite for outsourcing. That positions us well as firms really think about where they should be deploying their capital for growth.
On the personnel side, if youre looking at kind of second quarter to third quarter.
Remember that we talked about this on the last call I believe the mid.
Mid year is when we for the bulk of our workforce. We go through salary adjustments that we made the compensation changes that typically.
Typically go go on year on year out. So you saw some cost growth and personnel.
Owen Lau: They see more of that really in product creation out the generation and distribution. And I really look into FCI as a strategic partner for technology and operational delivery. And we're really starting to increase our footprint as I mentioned in global. But Phil, you want to provide a little bit more color either in certain spots or areas. We're really enthusiastic about not just the existing pipeline but the future runway in this business.
As a function of that.
And then on the compliance regulatory.
Rod.
We operate in many different.
Regulatory jurisdictions.
So.
And some of the all of the jurisdictions. We operate in are highly regulated with continued change in not only the regulations that exist. In addition to those regulations, but the scrutiny under which firms that operate our put by the regulators themselves and that just has.
Owen Lau: Thanks Ryan. Oh, and this is Phil McCabe just real quick. The margins came in a little higher this time at 36.2. If you look here today, they averaged about 35%, which is right about where we said we would be over the course of the year or so. So I expect that number to continue for a little while. And I think we spent a lot of time managing expenses at the same time we're investing in the future.
<unk> increased the workload realm.
Relative to.
All of our jurisdictional operations when you layer on top of that the fact that we expanded into a new jurisdiction in Luxembourg.
Owen Lau: On the sales front, 19 million in net sales. If you look at that year over year for three quarters, we're up about 16%. We have a net number of 61.5 million so far. And as Ryan said, the pipeline is strong and we're out in the market. We're all over our clients. And we're getting a lot of traction globally, a lot of traction in the US. We talked about private credit and real estate and infrastructure before.
We've had to add some capabilities in.
And talent there.
And then when you wrap it all up with the combination of who we hire and who are kind of in full time roles.
And then.
Sure.
The use of outside professionals to help guide us as we sort through.
Some of the regulatory changes that have occurred.
That drives us some of our costs.
Owen Lau: But I think we're in a really, really good spot for the future. I think the runway is fairly long for what we see out there. And I think we're in a really good spot. The only other thing I would say, which we touched on a little bit upon early that. There's a big intersection right now between the private asset market and the intermediary space. And as Phil mentioned, I think a lot of the traditional investment managers are also looking at how they can create and distribute some alternative products.
Finally in certain jurisdictions, we've been able to operate at a different type of leverage with using talent in certain jurisdictions to support.
The requirements in other jurisdictions.
But what's happened is.
Almost every jurisdiction now requires that talent to be local.
And that's also added to our personnel requirements and cost cost increases.
Got it thanks, a lot I appreciate it.
Owen Lau: And that's a good spot for us as well to really give them the infrastructure to get those things up and running and out in the market quickly. So to add to that right now, the percentage of alternatives within our traditional market is really, really small. But we have a major campaign going on now to try to push those products by way of interval funds and auction funds into that market. So I think we have a lot of traction and we expect to see some good results in the future.
As the regulatory employment program I call it.
Yes.
Okay. Thanks, a lot Dennis alright.
Alright.
Yes.
And we'll go to the line of Brian Kinney Morgan Stanley. Please go ahead.
Hey, good afternoon, thanks for taking my questions.
A couple of questions.
You mentioned migrating a large chunk of the private bank's book to ask WP this quarter.
Owen Lau: Got it, that's super helpful. And then on the press release, you mentioned, I think some of the revenue growth was driven by new products and additional services. Could you please maybe highlight some of these new products? Are you picking shares from competitors? But I mean, any more product will be helpful on these new products. Thank you. Yeah, from a competition perspective, we have two or three competitors that are out there. But I don't really think that we are our clients are fairly large and sophisticated.
Any update on where that leaves trust 3000, and should we expect any change in strategy on how long you plan to keep that asset up and running or how you plan to manage the trust 3000 and system.
Yes, I'll take that first and then kick the Sanjay Ryan hope you're doing well.
So right now that does not change our strategic plan because we have clients that are happy on trust 3000, what I would say its two things.
One we're probably more proactively engaged right now with those clients trying to understand what that timeline looks like what those operating models would be and what books of business. They will be bringing over at WP subsides and the team has done a terrific job there kind of really increasing the engagement, but the other more important thing with the U S Bank conversion and I think Dennis had this in his script.
Owen Lau: And they're not buying based upon getting a better deal or margin. So we are getting pretty much almost all of the new funds that are launched with our clients that are out there. And from a prospect perspective, when we're in a deal, we're usually in the final one or two. And we've been doing fairly well closing those books of business. So we have three new clients on the alternative side so far this year.
It is to have that size of an organization operating with the software as a service model really opens up a different level of conversation in the market for Sanjay and the team around either existing or prospective Sci clients that don't want to outsource. The back office that are looking for technology as a service. So this is a really important.
Owen Lau: I mean, this quarter. And in particular, there's one that we don't really name names was the sort of deal of the year so far. So we're in a good position when we're out in the market. Our clients are referencing us very happily and they're glad to do it. And we're in a good spot. So I think we're winning on a number of different fronts. I'm not sure I can pinpoint it to one particular competitor.
<unk> proved statement.
We're really happy where they are right now with this conversion with the successful weekend is the big book of business and it's one that the market has been watching.
<unk> you would add to this.
And I would echo the same as well.
Hey.
In terms I'll start on the trust 3000.
Owen Lau: But I think we're where we need to be right now. The new product comment is, you know, and Phil's team has done such a great, great job of building really strong relationships with our clients and the particularly the clients that continue to grow and expand. And when they tend to come to market with a new product, you know, we kind of be in the room when they're designing the new product. So you know, that's really what the reference is to new products is our clients, launching new products into the market and then leaning on us to be there to support them.
As I mentioned that we would be would stay aligned with our client strategy.
So you can look at the overall just 3000 business in two different segments, our larger clients who are in software. The service model. They are closely watching how we are implementing U S bank and that is going very successfully.
And the second segment you can look at the clients we are running in the <unk>.
Outsourced operations model and Thats, where we are actively engaging with our clients.
They are coming up for renewal, we are working with them to move them to <unk>.
WP.
But it's not a forced march.
Thanks, and then just as a follow up.
Owen Lau: That's a great point. Thank you. Gali, if I can add one more quick one, which is on the call side, I noticed that there's an increase in personal costs and investments. I think you mentioned related to compliance infrastructure to meet new regulatory requirements. Could you please talk about what these new requirements are and are they recurring expense or it's more like one time expense? Thank you. Now, on the ball, on the personal side, we're looking at kind of second quarter to third quarter.
Definitely appreciate the efforts to get the private banking margins towards higher profitability. It looks like you've started to make some progress there with margins moving from low single digits. It looks like now high single digit is that the right range going forward and as you.
Put together all of the piece parts of the SW PMI accretion and expense management is there any update on what margin level you'd be happy with in that business.
So I think Brian this is one we've been really consistent.
The team continued to execute on our plan to continue to grow those margins and to do that incrementally quarter over quarter, either through a combination of revenue installation and revenue increase through sale and continued expense management. So I mean, we are really focused on that we don't plan to deviate from that.
Owen Lau: Now, remember that, and you know, we talked about this on the last call. I believe that mid-year is when we, you know, for the bulk of our workforce, we go through salary adjustments and we make compensation changes that, you know, typically go on, you know, year and year out. So you saw some cost growth in personnel as a function of that. And then on the compliance, regulatory front, we operate in many different regulatory jurisdictions.
Land to continue to grow those margins moving forward.
Owen Lau: So, you know, on some of the, and all the jurisdictions we operate in are highly regulated with continued change in not only the regulations, you know, that exist, and additions to those regulations, but the scrutiny under which firms that operate are put by the regulators themselves, and that just has increased the workload relative to and all of our jurisdictional operations. When you layer on top of that, the fact that we expanded into a new jurisdiction in Luxembourg, we've had to add some capabilities and talent there.
The first thing I have said in the first call 18 months ago and the team has done an excellent job as I mentioned on the call. We have some losses that were announced.
Last couple of years, we've had to absorb and Sanjay and his team has done a terrific job for new sale increased revenue to continue to smooth that trajectory and drive those margins higher but we're not deviating from the previous stance that that business is going to get back to historical margins over the next few years.
Owen Lau: And then when you wrap it all up with the combination of who we hire and who are kind of in full-time roles, and then the use of outside professionals to help guide us as we sort through some of the regulatory changes that have occurred. That drives us some of our costs. Finally, in certain jurisdictions, we've been able to operate at a different type of leverage with using talent in certain jurisdictions to support the requirements in other jurisdictions.
Thanks I appreciate it.
And just to close the loop one of those losses that we had talked about.
Franco.
Most of the year is still not matriculated off.
And I think on last call, we talked about potentially by the end of third quarter and now we're in the kind of range of sometime in the fourth quarter, but there is still they have.
Left us.
So we'll see how that plays out but that's one of the one of the.
Thanks.
Private banking business, we will have to absorb when it happens the good news is that hasn't happened yet.
And that's always a positive.
The other comment.
It didn't make but you can give color if you're interested we just finished two days or three days with.
A large group of our both trust 3000, and SVP clients Euro on campus.
Owen Lau: Well, what's happened is almost every jurisdiction now requires that talent to be local, and that's also added to our personal requirements and cost increases. God, it thanks a lot. I appreciate it. It's the regulatory employment program. I call it. Okay. Thanks a lot, Dennis. All right, Oliver.
We can only think that getting them in the room together and hearing the stories and the positive stories about being on us to BP.
Both technologically and operationally we'll just.
To help encourage more towards retail that clients like the one that made the decision to convert in the third quarter.
Make that decision so really successful.
Two and half days of sessions with our broad banking client base.
Ryan Kinney: And we'll go over to the line of Ryan Kinney, Morgan Stanley. Let's go ahead. Hey, good afternoon. Thanks for taking my questions. There are a couple of questions. First, you mentioned migrating a large chunk of the private bank's book to SWP this quarter. Any update on where that leaves Trust 3000, and should we expect any change in strategy on how long you plan to keep that asset up and running or how you plan to manage the Trust 3000 system?
Thank you Barry color. Thank you.
Okay.
And we'll go over to Kristin.
Piper Sandler. Please go ahead.
Thanks, Brian I appreciate you taking my questions.
Firstly are you could give a little more color on the client losses in the quarter in the investment.
Bigler institutional investor segments, any key reasons or anything out of the ordinary or anything that you can provide on when to call out there.
Ryan Kinney: Yeah, I'll take that first and then kick this on, Jay Ryan. Hope you're doing well. So right now that does not change our strategic plan because we have clients that are happy on Trust 3000, what I would say is two things. One, we're probably more proactively engaged right now with those clients trying to understand what that timeline looks like, what those operating models would be, and what books of business they would be bringing over to SWP.
So on the on the institutional Investor side.
A.
A quick comment and then turn it over to Jay to be honored to speak to that business segment.
And then on the investment Advisors segment I'll, let Paul comment on that.
The institutional Investor segment is Ryan spoke.
Ryan Kinney: So Sanjay and the team has done a terrific job there, kind of really increasing the engagement, but the other more important thing with the US bank conversion. And I think Dennis had this in his script is to have that size of an organization operating with the software service model really opens up a different level conversation in the market for Sanjay and the team around either existing or prospective FBI clients that don't want to outsource the back office that are looking for technology as a service.
It's still in that.
DB corporate DB space.
Plant closures or annuity <unk> that occur and then also.
Yes.
We're being more aggressive in the market with retention, we know everybody in the industry across the board there's no hiding from it is under fee pressure.
The competitive landscape is arguably led by fees versus.
Ryan Kinney: So this is a really important proof statement and they are really happy where they are right now with this conversion with the successful weekend, the big book of business. And it's one that the market's been watching, so I don't know what you would add to this. Now I would echo the same as well. In terms of strategy for Trust 3000 and assignments in that we would stay aligned with our client strategy.
With many competitors have that kind of sets the table and Jay.
Jay and his team with Paul.
Paul Hasnt gone anywhere so the institutional businesses.
Still with the owners.
Left shoulder health a J.
It's been trying to keep these client keep our clients addressing their economic requirements, but at the same time, making smart long term relationship decisions J you want to since it's early days you want to sure. Thank you Dennis.
Ryan Kinney: So you could look at the overall trust 3000 business in two different segments, our large clients who are in software service model. They're closely watching how we are implementing US bank and that is going very successfully. And the second segment you can look at the clients we are running in an outsource operations model. And that's where we are actively engaging with our clients. And as in when they are coming up for renewal, we are working with them to move them to SWP, but it's not a forced mark.
Well, it's certainly not a new phenomenon that the primary objective of these pension plan sponsors is ultimately to obtain full funding what is relatively new those the past few years, you've had a historic full market and now you have a run on rising rate environment, which means there is a greater opportunity for plant two a new <unk>.
We believe around 30% of firms in the industry right now are exploring our risk transfer strategy. So that's removing the liability and risk from the pension via either the purchase of a group annuity or offering a lump sum window.
Ryan Kinney: Thanks. And then just as a follow-up, definitely appreciate the efforts to get the private banking margins towards higher profitability. It looks like you've started to make some progress there with margins moving from low single digits to, looks like now high single digits. Is that the right range going forward? And as you put together all the piece parts of the SWP migration and expense management, is there any update on what margin level you'd be happy with in that business?
We are aware of these market realities and some of the recent organizational changes that we've made are going to better position us to aggressively compete in OCI growth markets going forward. Your CIO market in general is growing and we've seen more and more large panel plants exploring like the virtues of outsourcing Chief investment officer.
Ryan Kinney: So I think Ryan, this is one we've been really consistent. The team continues to execute the plan to continue to grow those margins and to do that incrementally quarter over quarter either through contamination of revenue, installation and revenue increase your sales and continue to expense management. So, I mean we are really focused on that. We don't plan to deviate from that plan, to continue to grow those margins moving forward. That's probably the first thing I said in the first call 18 months ago, and the team's done an excellent job.
Sci standing as a market leader in that space, our seamless integration of technology operational and investment expertise I think are going to enable us to win moving forward.
Thanks, I appreciate all the color there and then.
Theres definitely been plenty of volatility recently.
Especially with rates and fixed income can you talk a little bit about how that impacted you in the institutional investor segment or any others at times like these because it drives the end clients and potential clients to be more inwardly focused which can dampen activity over the near term or in montney discussions or taking that actually spur new comp.
Ryan Kinney: As I mentioned on the call, we have some losses that were announced over the last couple of years that we got absorbed in the signed data team. It's done a terrific job through new sales, increased revenue to continue to smooth that trajectory and drive those margins higher. But we're not deviating from the previous stance that that business is going to get back to historical margins over the next few years. Thanks appreciate it.
<unk> with current clients and new.
New potential ones.
You mean in the.
Contexts of the calculation of their future liability streams and they are funded status.
Yes, yes exactly.
Jay do you want to.
Ryan Kinney: And Ryan, just to close, one of those losses that we had talked about for probably close to a year has still not matriculated off. And I think on the last call, we talked about potentially by the end of third quarter, and now we're in the kind of range of sometime in the fourth quarter, but they're still, they haven't left us. So we'll see how that plays out, but that's one of the things that the private banking business will have to absorb when it happens.
Yes, I think part of that goes into the fact that many of them are exploring the opportunity now in that rising rate environment too.
Purchase group annuity or offer a lump sum.
I think overall, though when you look at this marketplace.
Think this is a market that really crave specialization, so whether it's health care higher education, corporate DB Union plans, I think our prospects really demand.
Domain expertise and our advice and service around this so anytime there's a change like that happened in the marketplace. I believe it does open the opportunity for us to sit down and have those advice conversations about how the market realities are affecting their goals and objectives and the allocation that we've put out there we see those opportunities not only has the ability.
Ryan Kinney: The good news is that the napkin yet, and that's always a positive. The other comment that Sonja did make, but he can give color if you're interested. He just finished two days or three days with a large group of our, both Trust 3000 and SUP clients here on campus. And we can only think that getting them in the room together and hearing the stories and the positive stories about being on SWP, both technologically and operationally would just help encourage more Trust 3000 clients like the one that made the decision to convert in the third quarter, make that decision. So it's really successful to an update of sessions with our broad banking client base. Yeah, thank you very much. Thank you.
<unk> to strengthen our relationship but also to potentially move them into other products that are better for them and better for us long term.
Yes, I would just add on the advisor side, we haven't seen really a big position of cash we've seen a little bit of a spike in cash balances.
That's kind of normal when you see this level of volatility, but there has been.
No movement around away from the strategic portfolio of someone has some excess cash they might be holding it in a money market fund we offer very competitive yields there.
On our flows we've had very strong growth on the <unk> side, the custody platform very strong growth on the SMA the ETF.
Crispin Love: And we'll go over to Chris and Love Piper Sandler. Please go ahead. Thanks. I appreciate you taking my questions. First, are you going to give a little more color on the client losses in the quarter in the indefinite advisors and institutional investor segments? Any key reasons there? Anything out of your may or anything that you can provide or would call out there? So on the institutional investor side, I'll give you a quick comment and then turn it over to Jay Cipriano to speak to that business magnet.
Strategist program.
And we've seen a little bit of continued outflow of the Sci higher fee funds and we knew that so that's part of our business strategy is the kind of sell through that in this environment.
We just also had a conference of 270 advisors, a few weeks ago, unbelievable commentary and receptivity, especially around our applications and our investor portal, our dashboards and our mobile app that we rolled out. So we are getting really really good feedback and we think that that puts us in a well position for growth.
As we move forward into the fourth quarter.
Crispin Love: And then on the investment advisor segment, I'll let Paul comment on that. The institutional investor segment is as Ryan spoke, it's still on that, you know, the DB, Cooper DB space, it's plan closures or notizations that occur. And then also, you know, we're being more aggressive in the market with retention. We know everybody in the industry, across the board, there's no hide from it is under fee pressure. You know, the competitive landscape is arguably led by fees, you know, versus, you know, with many competitors and that kind of sets the table.
I appreciate all the color that's it for me.
And we'll go to Nick Fine.
Go to Mike Brown.
<unk>. Please go ahead.
Great.
Good evening.
Hey, Mike.
To start with.
Just maybe a follow up comment on the margin it looks like year to date, you're running just below 23% and Thats just kind of below your historical mid to high 20% range. So.
I know that you guys really focus on R&D spending.
Managing for the longer term here, but.
If I have to think about.
Crispin Love: And Jay, Jay and his team, you know, and with Paul, you know, Paul has a gonerity where so the institutional business is still on his left shoulder, help with Jay. You know, it's been trying to keep our clients addressing their economic requirements for the same time, making smart long-term relationship decisions. I don't know, Jay, you want to, it's in just early days, you want to? Sure. Thank you, Dennis. Well, it's certainly not a new phenomenon that the primary objective of these pension plan sponsors is ultimately to gain full funding.
An environment that could.
Good.
Even more challenging from here.
Does your what does your margin really kind of bottom out and what are the levers at your disposal here to protect the margin of course appreciate that there was some right sizing actions in the quarter. So youre not standing by idly, but just trying to think through whats at your disposal if things stay.
Get worse from here.
Sure So just.
I guess when I can use as first use a historical reference.
The last time, we've been through this type of difficult market cycle.
Crispin Love: What it is relatively new, those the past few years, you've had a historical market and now you have a run on rising rate environment, which means there's a greater opportunity for plans to annuatize. We believe we're around 30% of firms in the industry right now, or explore in a risk transfer strategy. So that's removing the liability and risk from the pension VA, either the purchase of a group annuity, or offering a lump sum window.
And.
Barry the market cycle.
Our highest margin business at that time.
Probably close between the advisor business institutional business.
The advisor business and this is without taking any drastic measures in terms of head count or cost reductions, but really running the business as is.
That business the margins bottomed out went from about high <unk> to high <unk>.
Crispin Love: We're aware of these market realities and some of the recent organizational changes that we've made are going to better position us to aggressively compete in OCIO growth markets going forward. OCIO market in general is growing, and we've seen more and more large plans exploring, like the virtues of outsourcing chief investment officer. So, SEI standing as a market leader in that states are seamless integration of technology, operational and investment expertise. I think are going to enable us to win moving forward.
The institutional business one from a similarly high forty's.
Bottomed out around <unk>.
Hi, <unk>.
40% margins, so the asset management more direct asset management business as the margins held up really well.
Obviously compressed but.
It spoke to our operating model our business model.
Our capabilities there.
On the banking side and on the IMS side, which are more operational businesses the pricing.
Crispin Love: Thanks. I appreciate all the color there. And then there's definitely been plenty of volatility recently, especially with rates and fixed income. Can you just talk a little bit about how that's impacted you in the institutional investor segment, or any others at times like these, because it drives the end clients and potential clients to be more inwardly focused, which can dampen activity of manure term, or elongate discussions, or can it actually spur new conversations with current clients and new potential ones?
As a little bit less impacted.
We do get some variability because of markets, it's hard to run away from those types of extreme markets.
IMS for example, the mix of business.
Is very diverse so it's not as directly correlated to market activity.
There was some margin compression, but it wasn't as severe plus with breakpoint pricing. The first assets you would lose.
Crispin Love: Give me in the context of the calculation of their future liability streams and their funded status. Yes, exactly. I think part of that goes into the fact that many of them are exploring the opportunity now in that rising rate environment to purchase group annuity or offer a lump sum. I think overall though, when you look at this marketplace, I think this is a market that really creates specialization. So, whether it's healthcare, higher education, corporate DB union plans, I think our prospects really demand domain expertise and our voice and service are on this.
In down markets or the lower priced assets relative to most client contracts. So.
There is a little bit of buffer in that.
And banking similarly, we have revenue streams that are not.
Not tied to assets or account based or transactional activity base.
In times of market stress those things tend to honestly do count numbers, but activity goes up so there is some.
Protection there.
But I will say the banking side, we did take some margin hit.
But it was principally because we use it as an opportunity to re contract with clients extend relationships helped them deal with the financial distress. They were under so it gave them some temporary relief with the trade off of a more longer term partnership like relationships. So.
Crispin Love: So, anytime there's a change like that happen in the marketplace, I believe it does open the opportunity for us to sit down and have those voice conversations about how the market realities are affecting their goals and objectives and the allocation that we've put out there. We see those opportunities not only as the ability to strengthen a relationship, but also to potentially move them into other products that are better for them and better for us long-term.
With all that said, we do have some costs that are variable so we.
Sub advisor expenses.
Direct expense on our P&L that certainly would contract.
Our variable part of compensation.
Did make some.
Crispin Love: Yeah, I would just add on the advisor side, we haven't seen really a big position of cash, we've seen a little bit of spike in cash balances. That's kind of normal when you see this level of volatility, but there has been, you know, kind of no movement around, away from the strategic portfolio, if someone has some excess cash, they might, you know, be holding it in a money market fund. We offer very competitive yields there.
Decisions to adjust that.
But we were one of the few financial services firms.
Period, and I'm, not making any future commitments here, but one of the few financial services firms in that period that actually paid incentive compensation through that cycle that wasn't at a 100% of our normal but it was.
Fairly healthy other than the executive team the executive team made a decision that.
Crispin Love: On our flows, we've had very strong growth on the AEW side, the custody platform. [inaudible] our mobile app that we rolled out. So, we are getting really, really good feedback and we think that that puts us in a well-position for growth as we move forward into the fourth quarter. Thank you. Appreciate all the color of it, that's it from us.
We would not.
Ill take that variable comp as part of our.
In that period so.
And then we did use it.
Most things.
Probably the first time, we ever clean out your attic is when Youre moving.
So we use it as an opportunity to actually clean up some things that needed to be cleaned up any way and should have been cleaned up kind of a normal course of business, but.
Gave us I'd say, a little bit higher incentives to act on it and we did get some cost take out from that but we also invested money in client facing activities.
We leaned into our clients will go more on the client service side, we did not slow down our R&D initiatives and we certainly put them under more scrutiny, but we actually spent more in capital and R&D during that <unk> period than we had spent kind of the over 607 period.
Mike Brown: Okay, and we'll go over to the next slide. Go over to Mike Brown with KBW. Please go ahead. Great. Good evening. Hey, Mike. Hey, I wanted to start with just maybe a follow-up comment on the margin. It looks like you're the date you're running just below 23%, and that's just kind of below your historical mid to high 20% range. So, I know that you guys really focus on R&D spending and you're managing for the longer term here, but if I have to think about an environment that could get even more challenging from here, where does your margin really kind of bottom out?
We really felt that we have a really strong financial foundation, we have a very.
Mike Brown: And what are the levers at your disposal here to protect the margin? I of course appreciate that there were some right sizing actions in the quarters. You're not standing by idly, but just trying to think through what's at your disposal if things stay or get worse from here. For so, just I guess what I can use is first use some historical reference. The last time we've we've been through this, you know, that type of a difficult market cycle.
Effective business model.
We were very.
Yeah.
Scrutinizing around making sure we don't sacrifice the long term and what we're really all about which is long term strategic growth and value just because of some short term pressures.
And I would say, we would probably operate in a very similar fashion.
Okay, great. Thanks for all the historical perspective, there Dennis.
And then maybe just.
Kind of quickly lining up some of your sales and pipeline commentary and it just looks like some of those metrics are just down quarter over quarter and so I know that's just one data 0.1 point in time.
And you certainly talked about a number of key investments and you sound upbeat about a lot of your initiatives here. So I guess, we just take a step back can you just help me synthesize as to trends and what that ultimately can mean for some of the more near term trends, including activity into year end here.
Mike Brown: And during that market cycle, our highest margin business at that time was probably close between the advisor business institutional business. The advisor business, and this is without SEI, you know, taking any drastic measures in terms of head counter cost reductions, but really running the business as is that business, the margin is bottomed out and went from about high 40s to high 20s. The institutional business went from similarly high 40s and bottomed out around maybe high 30s, 40% margin.
So I think Mike it's Brian.
I mean, if you look at Q3 Q3 was a little bit down relative to Q2 in sales for Q1, and Q2 were really good sales quarters for US Q3 was really impacted on the asset management side, we had another really solid quarter and we expect that to continue if you look at the pipelines in Q4 Q1 of next year as Phil mentioned.
And Sanjay mentioned and even Paul Jacobs somehow so we feel very good about where we are in our pipeline perspective.
Q3, sometimes you get a little bit of like the summer and things drag on one of the things pushed into Q4.
Mike Brown: So the asset management, you know, more direct asset management businesses, the margins held up really well. Obviously compressed, but the It spoke to our operating model, our business model, and our capabilities there. On the banking side and on the IMS side, which are more operational businesses, the pricing is a little bit less impacted. We do get some variability because of markets that are going away from those types of extreme markets, but an IMS, for example, the mix of business is very diverse.
But really I think Q3 was primarily impacted by what we've just talked about it with Jay went through but yes, Phil already mentioned you have $19 million quarter project very consistently putting positive results on the board. So we expect that to continue so.
I also think one of the things that's really hard to predict but one of the leading indicators for us that we're more focused on now that I mean, we are in the past is really that client activity. So as Dennis said I was going to amphitheater with <unk>.
92 clients and Theyre across 53 banks pause to St. Paul and I were out of Arizona with Wayne a few weeks ago to 270 filing we are all over the place right now with our clients and the market. The new enterprise sales team is going to help so I get it we understand the rules of the game, we understand the scoreboard we're doing the right thing.
Mike Brown: It's directly correlated to market activity. So there there was some margin compression, but it wasn't a severe plus with break point pricing, the first assets you would lose in down markets or the lower price assets relative to most client contracts. So there's a little bit of buffer in that. And banking similar, we have revenue streams that are not tied to assets or work account-based or transaction or activity based in times of market stress.
Yes.
Okay, great. Thanks for taking my questions.
Thank you Mike.
Thank you at this time no further questions in queue back over to CEO Ryan Hickey. Please go ahead.
Thank you as I mentioned, our momentum continued through the third quarter and we made good progress on our strategic initiatives. We're doing the right things we're focused on the right areas I'm personally getting more focused with Wayne and the team on the investment management and asset management side, we're very excited about what we see in the future there we're enhancing our market presence.
Mike Brown: Those things tend to honestly do account numbers, but activity goes up. So there's some protection there, but I will say in the banking side, we did take some margin hit, but it was principally because we use it as an opportunity to re-contract with clients, extend relationships, help them deal with the financial distress they were under. So gave them some temporary relief with the trade off of a longer term partnership like our relationship.
<unk> through increased engaging with our clients, we're expanding our reach across markets globally, we need to relentlessly challenge ourselves to improve our execution and drive growth, but we're going to build upon the foundation, we have in place to drive that growth. Thank.
Mike Brown: So with all that said, we do have some costs that are variable. So we, you know, sub-advisor expense, that's a direct expense on our P&L. That certainly would contract our variable part of compensation. You know, we did make some decisions to adjust that. But we were one of the few financial services firms in that period, and I'm not making any future from here, but one of the few financial services firms in that period that actually paid incentive compensation through that cycle, it wasn't at 100% of our normal, but it was fairly healthy.
Thank you for joining today's call.
Thank you, ladies and gentlemen that does conclude your conference. We do thank you for joining you may now disconnect.
Good day.
Mike Brown: Other than the executive team, the executive team made a decision that we would not take that variable compensation part of our in that period. So, and then we did use it like most things, you know, probably the first time you ever clean out your attic is when you're moving. So we use it as an opportunity to actually clean up some things that needed to be cleaned up anyway and should have been cleaned up kind of a normal course of business, but it gave us, I'd say, a little bit higher incentives to act on it.
Mike Brown: And we did get some cost take out from that. But we also invested money in client facing activities and we leaned into our clients little bit more on the client service side. We did not slow down our R&D initiatives and we certainly put them under more scrutiny, but we actually spent more in capital in R&D during that away to nine period, then we had spent kind of the old 607 period. So we really felt that, you know, we have a really strong financial foundation.
Mike Brown: We have very effective business models. And that we're very... Scrutinizing around making sure we don't sacrifice the long-term and what we're really all about, which is long-term strategic growth and value just because of some short-term pressure. And I would say we would probably operate in a very similar fashion. Okay, great. Thanks for all the historical perspective that are Dennis. Yeah, maybe just kind of quickly lining up some of your self and pipeline commentary and it just looks like some of those metrics are just down, quarter over quarter.
Mike Brown: And so I know that's just one, one data point, one point in time. And you certainly talked about a number of key investments. And you sound upbeat about a lot of your initiatives here. So I guess we just take a step back. You just helped me synthesize those two trends and what that ultimately can mean for some of the more near-term trends, including activity into your end here? So I think my kids Ryan, I mean, if you look at Q3, Q3 was a little bit down relative to Q2 in sales, but Q1 and Q2 were really good sales quarters for us.
Mike Brown: Q3 was really impacted on the asset management side. We had another really solid quarter and we expect that to continue if you look at the pipelines and Q4, Q1 of next year, Phil mentioned and Sanjay mentioned and even Paul and James come out. So we feel really good about where we are in a pipeline perspective. Q3, sometimes you get a little bit of like this summer and things drag on, things push into Q4.
Mike Brown: But really, I think Q3 was primarily impacted by what we just talked about and what Jay went through. Phil already mentioned and 19 million dollar quarter. Sanjay is very consistently put in positive results on the board. So we expect that to continue. So I also think one of the things that's really hard to predict, but one of the leading indicators for us that we're more focused on now than anywhere in the past is really that client activity.
Mike Brown: So it's then it said, I was in the end, the theater was signed in there, 92 clients in there across 53 banks. Paul is saying Paul and I were out in Arizona with Wayne a few weeks ago, 275. I think we are all over the place right now with our clients in the market. The new enterprise sales team is going to help. So I get it. We understand the rules of the game. We understand the scoreboard. We're doing the right thing. Okay. Great. Thanks for taking my questions. Thank you.
Ryan Hicke: At this time, no further questions in Q back over to CEO Ryan Hicky. Please go ahead. Thank you. As I mentioned, our momentum continued through the current third quarter and we made good progress on our strategic initiative. We're doing the right thing. We're focused on the right areas. I'm personally getting more focused with Wayne and the team on the investment management and that's the management side. We're very excited about what we see in the future there.
Ryan Hicke: We're enhancing our market presence through increasing engagement with our clients. We're expanded our reach across markets globally. We need to relentlessly challenge ourselves to improve our execution and drive growth. What we're going to build a time the foundation we have in place to drive that group.
Ryan Hicke: Thank you for joining today's call. Thank you.
Unknown Executive: Ladies and gentlemen, that does conclude your conversation.