Q2 2025 SEI Investments Co Earnings Call
Ryan Hicke: This is another clear signal of our commitment to long-term growth, innovation, and accountability. Now shifting to areas where we see progress, but also opportunities. In the second quarter, SEI realized nearly $30 million in net sales events, led by strong momentum again in our investment manager segment. On a trailing 12-month basis, that's a new record for SEI. Absent some private banking delays caused by market volatility in April, we believe Q2 would have been even better, but timing is what it is. Our pipelines across all our businesses, including PV, remain strong. We're actively addressing outflow headwinds to drive sales and asset management, and that team is making tangible progress, as evidenced by two quarters of improving net assets.
This is another clear single signal of our commitment to long term growth innovation and accountability.
Now shifting to areas, where we see progress but also opportunity.
In the second quarter STI realized nearly $30 million in net sales events led by strong momentum again in our investment managers segment on a trailing 12 month basis, that's a new record for STI.
Absent some private banking delays caused by market volatility in April we believe Q2 would have been even better but timing is what it is.
Our pipelines across all our businesses, including TB remains strong.
Currently addressing outflow headwinds to drive sales in asset management and that team is making tangible progress as evidenced by two quarters of improving net asset flows.
Ryan Hicke: Two years ago, $30 million in net sales would have been exceptional. Today, it's a solid baseline, reflecting how far we've come in the scale of our ambition. We're not yet where we want to be, but we're moving faster and with greater focus. The competitive landscape is also shifting in our face. Firms are rethinking their operating models, and we're leaning into that opportunity. We are seeing increased interest in outsourcing from banks, large RIAs, and alternative asset managers. many of whom have historically managed operations and technology in-house.
Two years ago $30 million in net sales would've been exceptional today, it's a solid baseline.
Selecting how far we've come in the scale of our ambition.
We're not yet where we want to be but we're moving faster and with greater focus.
The competitive landscape is also shifting in our favor firms are rethinking their operating models and we're leaning into that opportunity. We are seeing increased interest in outsourcing from banks large ria's and alternative asset managers, many of whom have historically managed operations and technology in house.
Ryan Hicke: Last week in New York, I met with global alternative asset managers that are exploring strategic outsourcing partners. SEI is uniquely positioned to support their business transformation. Our focus remains on flawless execution to ensure client satisfaction and referenceability, which is why we're proactively investing in talent, technology and platform. As mentioned earlier, in our asset management businesses, we're seeing encouraging signs. The momentum is real. AUM net flows in the first half of 2025 were roughly flat against several billion of net outflows in the same period last year. And if you include growth across our broader platform, not just AUM, we're beginning to see early signs of modest net growth.
Last week in New York.
Alternative asset managers that are exploring strategic outsourcing partnerships.
<unk> is uniquely positioned to support their business transformation.
Our focus remains on flawless execution to ensure client satisfaction and reference ability, which is why we are proactively investing in talent technology and platforms.
As mentioned earlier in our asset management business is we're seeing encouraging signs.
The momentum is real.
AUM net flows in the first half of 2025 were roughly flat against several billion of net outflows in the same period last year.
And if you include growth across our broader platform not just a U N. We're beginning to see early signs of modest net growth.
Ryan Hicke: That's meaningful progress. Much of this improvement is tied to our evolving strategy with focused client segmentation, pricing discipline, and a renewed sense of enthusiasm for our value proposition across the ecosystem. There's real energy in those businesses and it's beginning to translate into results.
Meaningful progress much of this improvement is tied to our evolving strategy with focused client segmentation pricing discipline and a renewed sense of enthusiasm for our value proposition across the ecosystem, there's real energy in those businesses and it's beginning to translate into results now.
Ryan Hicke: Now let me address margins, an area where we're always watching closely. Margin stepped down in Q2, reflecting the investments we've been discussing with you over the last few quarters. We continue to make the necessary investments to support future growth and add talent. That impacts the income statement in the short term. But these investments are targeted and intentional, and we're tightening our focus in a few areas. We will remain surgical on hiring. We will reprioritize certain discretionary spend and we'll continue to streamline internal processes to ensure we're allocating resources where they'll have the greatest impact. With Sean's leadership, we're pairing these investments with increased accountability, measurement, and leverage.
Now, let me address margins an area, where we're always watching closely.
Margin step down in Q2, reflecting the investments we've been discussing with you over the last few quarters.
We continue to make the necessary investments to support future growth and add talent.
That impacts the income statement in the short term, but these investments are targeted and intentional and we are tightening our focus in a few areas. We will remain surgical on hiring we will repay our re prioritize certain discretionary spend and we will continue to streamline internal processes to ensure we're allocating resources, where they will have the greatest impact.
With Sean's leadership repairing these investments with increased accountability measurement and leverage.
Ryan Hicke: Everyone in this room is responsible for delivering on the return on these investments. We will be disciplined while staying committed to our long-term growth strategy.
Everyone. In this room is responsible for delivering on the return on these investments we will be disciplined while staying committed to our long term growth strategy.
Ryan Hicke: Let me close with this. We are running the company to make sure SEI endures and thrives for the long term, not just quarter over quarter. With the adoption of Stratos and the addition, the growing strengths of our foundation, the breadth and depth of our sales pipelines, the execution of our growth strategy, SEI has amazing potential over the next 12 months, the next decade and beyond.
Let me close with this we are running the company to make sure Sci in doors and thrive for the long term not just quarter over quarter.
The adoption of Stratasys and the addition of <unk>.
Strength of our foundation, the breadth and depth of our sales pipelines the execution of our growth strategy Sci has amazing potential over the next 12 months the next decade and beyond.
Strength of our foundation, the breadth and depth of our sales pipelines the execution of our growth strategy Sci has amazing potential over the next 12 months the next decade and beyond.
Ryan Hicke: And with that, I'll turn over to Sean. Thank you, Ryan. Please turn to slide four.
Sean: Thank you and with that I'll turn it over to Sean.
Sean: Thank you Ryan please turn to slide four.
Sean Denham: Our EPS of $1.78 includes significant one-time items, notably a gain from the June 30th sale of our family office services business, and a gain from a long-standing vendor negotiation, totaling a $0.60 EPS impact. These were partially offset by $0.02 of choppier expenses hitting corporate overhead due to foreign currency losses and legal fees tied to the Stratos investment. Excluding these items, SEI would have realized EPS of $1.20, reflecting an increase from both the prior year and prior.
Speaker Change: Our EPS of $1 78 includes significant onetime items, notably a gain from the June 30 sale of our family office services business and a gain from a long standing vendor negotiation totaling 60 cents EPS impact.
Speaker Change: These were partially offset by <unk> of choppy your expenses hitting corporate overhead due to foreign currency losses, and legal fees tied to the stratus investment.
Speaker Change: Excluding these items the Sci would've realized EPS of $1 20, reflecting an increase from both the prior year and prior quarter.
Sean Denham: Slide 5 summarizes our business unit performance. Private banking revenue increased both year over year and sequentially, supported by a handful of larger clients going live in the quarter. Investment Managers' Revenue grew 8% year-over-year with double-digit growth in alternatives, offsetting a 1% decline in traditional revenue due to mark-to-market weakness. We expect this market-related drag to ease in the second half, subject to market conditions. Our advisor and institutional businesses realize flat sequential revenue growth as market appreciation in May and June all set significant declines in April. With the exception of our investment manager. All SEI businesses saw positive operating leverage when compared to the prior year.
Speaker Change: Slide five summarizes our business unit performance.
Speaker Change: Private banking revenue increased both year over year and sequentially supported by a handful of larger clients going live in the quarter.
Speaker Change: Investment managers revenue grew 8% year over year with double digit growth in alternatives offsetting a 1% decline in traditional revenue due to mark to market weakness, we expect this market related drag to ease in the second half subject to market conditions.
Speaker Change: Our advisor and institutional businesses realized flat sequential revenue growth as market depreciation in May and June offset significant declines in April.
Speaker Change: With the exception of our investment managers goodness, all Sci businesses saw positive operating leverage when compared to the prior year.
Sean Denham: However, margins did decline on a sequential basis, which we'll discuss on slide. Starting with investment managers, the decline in margins from the first quarter is primarily attributable to hiring ahead of expected new business, ensuring that we can execute quickly as we win new business. Additionally, the margin comparison against the first quarter is challenged due to first quarter delays in the hiring plans we had spoken about previously. The hiring made in the second quarter, we now expect cost to layer on about as quickly as revenue. So we anticipate that margins will remain in this range as we staff for larger client conversions.
Speaker Change: However margins did decline on a sequential basis, which will discuss on slide six.
Speaker Change: Starting with investment managers the decline in margins from the first quarter is primarily attributable to hiring ahead of expected new business, ensuring that we can execute quickly as we win new business.
Speaker Change: Additionally, the margin comparison against the first quarter's challenge due to first quarter delays in the hiring plans we had spoken about previously.
Speaker Change: With the hiring made in the second quarter, we now expect cost to layer on about as quickly as revenue. So we anticipate that margins will remain in this range as we staff for larger client conversions.
Sean Denham: Margins in our advisor business increased versus the prior year, driven by $21 million of revenue from our integrated cash program, up $11 million from Q2 of last year. The 2.2% point decline from the first quarter was driven by a handful of choppier items. For instance, an increased accrual from our SEI life-yield earn out drove a nearly $1 million increase in expense against Q1. We had nearly $500,000 in expenses associated with the onboarding a large RIA client, and the first quarter also benefited from just over $1 million of accrual reversal, which further impacts the comparison. Private banking margins improved against last year, but declined sequentially as the growth-oriented investments Ryan mentioned began to ramp up in the second quarter.
Speaker Change: Margins in our advisor business increase versus the prior year driven by $21 billion of revenue from our integrated cash program up $11 million from Q2 of last year.
Speaker Change: The two two percentage point decline from the first quarter was driven by a handful of choppy or items.
Speaker Change: Thats, an increased accrual from our Sci like you'll earn out drove a nearly $1 million increase in expense against Q1, we had nearly $500000 in expenses associated with the Onboarding a large RIAA client in the first quarter also benefited from just over $1 million of accrual reversal, which further.
Speaker Change: Impacts the comparison.
Speaker Change: Private banking margins improved against last year, but declined sequentially as the growth oriented investments Ryan mentioned began to ramp up in the second quarter.
Sean Denham: Institutional margins increased both year-over-year and sequentially, although the current quarter was aided by a $1 million earn-out reversal that won't repeat.
Speaker Change: Institutional margins increased both year over year and sequentially. Although the current quarter was aided by a $1 million earn out reversal that won't repeat.
Sean Denham: Consolidated operating margins improved slightly year over year, but declined sequentially, impacted by the aforementioned one-time expenses and corporate overhead.
Speaker Change: Consolidated operating margins improved slightly year over year, but declined sequentially impacted by the aforementioned onetime expenses and corporate overhead.
Sean Denham: Turning to our sales events activity on slide seven. Investment managers drove net sales events across SEI with a very balanced mix of wins across alternatives, traditional, and global. No one single client drove investment manager sales events in the quarter. Our pipeline in this business is extremely strong, driven by several large alternative managers. These managers are growing at a rapid pace, and they recognize they would benefit from a strategic partner to continue powering their growth. The timing of realizing these winds remains fluid, but we anticipate the pace of winds to accelerate in the back half of the year.
Speaker Change: Turning to our sales events activity on slide seven.
Speaker Change: Investment managers drove net sales events across the Sci and with.
Speaker Change: A very balanced mix of wins across alternatives traditional and global.
Speaker Change: No one single client drove investment manager sales events in the quarter.
Speaker Change: Our pipeline in this business is extremely strong driven by several large alternative managers. These.
Speaker Change: These managers are growing at a rapid pace and they recognize they would benefit from our strategic partner continuing powering their growth.
Speaker Change: The timing of realizing these wins remains fluid, but we anticipate the pace of wins to accelerate in the back half of the year.
Sean Denham: Private banking net sales events totaled just over $2 million, with timing slipping for a number of deals due to April's market volatility. Reiterating Ryan's comments, our private banking pipeline remains strong and balanced among regional, community, and large banks, as well as professional services across both new and existing SEI clients. The institutional and advisor's businesses recorded a combined $1 million in net sales events in Q2 and $2 million year-to-date, a significant improvement from a negative $11 million in the first half of 2020.
Speaker Change: Private banking net sales events totaled just over $2 million with timing slipping for a number of deals due to april's market volatility.
Speaker Change: Reiterating Ryan's comments, our private banking pipeline remains strong and balanced among regional community at large banks as well as professional services across both new and existing SDI clients.
Speaker Change: The institutional advisory businesses recorded a combined $1 million in net sales events in Q2 and $2 million year to date, a significant improvement from a negative $11 million in the first half of 2024.
Sean Denham: In summary, SEI's sales pipeline remains strong and consistent with our messaging over the last couple of quarters. We will be investing in both talent and technology ahead of that growth to ensure outstanding execution for our clients. Turning to slide 8. SEI's AUM and AUA grew on both a sequential and year-over-year basis. AUM growth reflects positive market conditions and improving asset flows for SEI's advisor and institutional business. AUM net flows for these two businesses were negligible year to date, significantly improving from the first half of 2020. Traditional mutual fund outflows were largely offset with growth in models and custom portfolios.
Speaker Change: In summary, Sci sales pipeline remains strong and consistent with our messaging over the last couple of quarters.
Speaker Change: We'll be investing in both talent and technology ahead of that growth to ensure outstanding execution for our clients.
Speaker Change: Turning to slide eight.
Speaker Change: Sci is AUM and <unk> grew on both a sequential and year over year basis.
Speaker Change: AUM growth reflects positive market conditions, and improving asset flows for Sci as advisor and institutional businesses.
Speaker Change: AUM net flows for these two businesses for negative negligible year to date significantly improving from the first half of 2024.
Speaker Change: Traditional mutual fund outflows were largely offset with growth in models and custom portfolios. We expect this trend to continue and we are shifting resources from traditional mutual funds and prioritizing the growing tax sensitive ETF SMA and models business in conjunction with our evolved asset management strategy.
Sean Denham: We expect this trend to continue, and we are shifting resources from traditional mutual funds and prioritizing the growing tax-sensitive ETF, SMA, and models business in conjunction with our evolved asset management strategy. We are in the early stages of our asset management journey of going upstream to work with larger advisors and growing the RIA business. The early progress is encouraging and happening at a faster pace than we had originally anticipated. Growth in AUA, both sequentially and year-over-year, reflects the continued demand for investor investment manager services in addition to the benefit of market appreciation. Outflows in our LSV investment were more than offset by market appreciation.
Speaker Change: We are in the early stages of our asset management journey going upstream to work with larger advisers and growing the RIAA business.
Speaker Change: Early progress is encouraging and happening at a faster pace than we get originally anticipated.
Speaker Change: Growth in both.
Speaker Change: Both sequentially and year over year reflects the continued demand for Investor investment manager services. In addition to the benefit of market appreciation.
Speaker Change: Outflows in our LSP investment were more than offset by market depreciation fund performance remains solid with LSP, realizing $5 million of incentive fees in Q2 at Sci share.
Sean Denham: Fund performance remains solid with LSV realizing $5 million of incentive fees in Q2 at SEI shares.
Sean Denham: Slide 9 summarizes our capital allocation. During the quarter, we continue to return significant capital to shareholders with buybacks now exceeding $700 million on a trailing 12 month basis. A recently announced Stratis investment is not reflected in Q2 figures and is expected to close later this year. We expect to fund the majority of Stratos with low cost balance sheet cash while continuing to return free cash flow to shareholders. with share repurchases and dividends. We will maintain significant capacity for incremental investment in the Fortress balance sheet.
Speaker Change: Slide nine summarizes our capital allocation.
Speaker Change: During the quarter, we continued to return significant capital to shareholders with buybacks now exceeding $700 million.
Speaker Change: On a trailing 12 month basis.
Speaker Change: Our recently announced ravished investment is not reflected in Q2 figures and is expected to close later this year.
Speaker Change: We expect to fund the majority of stratas with low cost balance sheet cash, while continuing to return free cash flow to shareholders.
Speaker Change: With share repurchases and dividends, we will maintain significant capacity for incremental investment any fortress balance sheet.
Ryan Hicke: Before concluding, I'd like to remind our audience about our Investor Day coming up in New York on September 8. You should have received an invite to sign up from Brad, please send us a note if you missed There's a lot of work happening at SEI, much more than we can unpack in a quarterly update. I think our analysts and investors will get a lot of value from hearing us dive deeper into our strategic priorities and anticipated outcomes.
Speaker Change: Before concluding I would like to remind our audience about our investor day coming up in New York on September 18th.
Speaker Change: I have received an invite to sign up for Brett. Please send us a note if we missed you.
Speaker Change: There's a lot of work happening at Sci much more than we can impact any quarterly update I think our analysts and investors will get a lot of value from hearing us dive deeper into our strategic priorities and anticipated outcomes with that operator. Please open the line for questions.
Unknown Executive: With that, operator, please open the line for questions. Thank you. Ladies and gentlemen, as a reminder to ask the question, please first start 11 on your telephone, then wait for your name to be announced. To withdraw your question, please first start 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced soon.
Speaker Change: Withdraw your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: Okay.
Crispin Love: Our first question comes from the line of Crispin Love with Piper Sandler. Your line is open. Thank you and good afternoon, everyone.
Speaker Change: Our first question comes from the line of Crispin Love with Piper Sandler Your line is open.
Speaker Change: Thank you and good afternoon, everyone.
Sean Denham: First on investments in talent and technology. I know, this is an area where you're always investing, but there were definitely multiple call outs in the release and the call. So first, can you discuss some of the key investments you're most focused on today? And then are you able to size the incremental investment you expect in coming quarters in these areas? Sure. Thanks for the question. I can take that. I'll give you one or two examples of where some of the investments are being made. So I mentioned in my prepared remarks that we're making investments in talent and technology.
Speaker Change: First on investments in talent and technology I know this is an area, where youre always investing but there were definitely multiple callouts in the release in the call. So first can you discuss some of the key investments you're most focused on today and then are you able to size the incremental investment you expect in coming quarters in these areas.
Speaker Change: Sure. Thanks for the question I can take that I'll give you one or two examples.
Speaker Change: Of where some of the investments are being made so I had mentioned.
Speaker Change: In my prepared remarks that we're making investments in talent and technology for instance, and in.
Sean Denham: For instance, in IMS, we understand really well what our pipeline is, what expected sales will be moving forward. And as a result of that, we need to hire in advance of that to anticipate those sales. So that's on the people side, and I think that's pretty consistent really across the businesses, including PB to a certain extent. From a technology standpoint, we're investing for IMS, for instance, we're investing in technology to streamline our IMS systems for better scalability and cost efficiency. So that's going to set us up for future growth. Those two examples, examples are pretty consistent with how we think about technology and our people.
Speaker Change: In IMS.
Speaker Change: We understand really well what our pipeline is what expected sales will be moving forward and as a result of that we need to hire in advance of that.
Speaker Change: To anticipate those those sales so thats on the people side, and I think thats pretty consistent really across the businesses.
Speaker Change: Including PV towards certain extent.
Speaker Change: From a technology standpoint, we're investing for IMS for instance, we're investing in technology to streamline our Rms systems.
Speaker Change: For better scalability and cost efficiency, so that's going to set us up for future growth.
Speaker Change: Those two examples examples are pretty consistent with how we think about technology and our people. So in my comments I had mentioned that we are continuing to look at what that sales pipeline look like how we are going to scale, our technology and our platform for future growth.
Crispin Love: So, you know, in my comments, I had mentioned that we are continuing to look at what that sales pipeline looks like, how we are going to scale our technology and our platform for future growth. Great, thank you.
Crispin Love: I'm sorry, you had one more one more piece to that. And so the expectation for future margins, I think you can expect kind of where we are in Q2 to be relatively consistent with what we're expecting in future quarters. Perfect. Okay, that makes sense.
Speaker Change: Great. Thank you appreciate it.
Speaker Change: I'm sorry, you had one more one more piece to that and so the expectation for future margins. I think you can expect kind of where we are in Q2 to be relatively consistent with what we're expecting in future quarters.
Speaker Change: Perfect. Okay that makes sense and then just.
Crispin Love: And then just a second question for me on sales events. You called out temporary delays in private banking. Can you just give a little bit more detail there? What drove that and then just expectations going forward?
Speaker Change: Second question from me on sales event, you called out temporary delays and private banking can you just give a little bit more detail there.
Speaker Change: What drove that and then just expectations going forward.
Ryan Hicke: Yeah, Crispin, it's Ryan. I hope you're doing well. This one was really I think We'll blame April. And I'm being serious. April just kind of froze everything in a couple segments for a little while. But similar to the commentary we had almost a year ago, when we talked about some things kind of leaking through that July 4th weekend, the pipeline is exactly what the pipeline was. So, you know, what we really like to see is kind of the strength and depth of that pipeline.
Brian: Yes, Chris finish, Brian I hope Youre doing well.
Speaker Change: This one was really I think.
Brian: Globally in April.
Speaker Change: And I think in theory.
Speaker Change: April just kind of froze everything in a couple of segments for a little while.
Speaker Change: But similar to the commentary we had almost a year ago. When we talk about some things kind of leaking through that July 4th weekend.
Speaker Change: The pipeline is exactly what the pipeline.
Speaker Change: Yes, what we'd really like to see is kind of the strength and depth of that pipeline Sanjay sit right next to me Sanjay and I literally an hour ago went through the entire pipeline for the next 12 months.
Ryan Hicke: Sanjay's sitting right next to me. Sanjay and I literally an hour ago went through the entire pipeline for the next 12 months. But it was just the product of things that were moving along at a certain path that we would have had a kind of gate three that would have naturally matriculated to gate four and closing. Just got pushed a bit to the right. And again, timing is what it is. So will that manifest itself in the next 90 days or next 180 days? I wish I had more control over that. But the pipeline in banking is really strong.
Speaker Change: But it was just a product of things that we're moving along at a certain path that we would've had to kind of gauge three that would have naturally matriculated to gate for in closing just got pushed a bit to the right.
Speaker Change: And again the timing is what it is so will that manifest itself in the next 90 days. Our next 180 days I wish I had more control over that.
Sanjay Sharma: Sanjay, you want to provide a little color commentary to what you're seeing? Yeah, certainly. The second quarter, I know that things slowed down a bit, but we used that time to further strengthen our pipeline. and also building our relationship, continuously investing in our existing client base. So I strongly believe that our pipeline is strong. The other part I would highlight is that over several quarters, we have been talking about our focus and attention on regional and community space. But in parallel, we were also focusing on the small bank market, as well as the large bank and I strongly believe that our pipeline is more balanced across those three segments now.
Speaker Change: The pipeline in banking is really strong Sanjay you want to provide a little color commentary to what youre, saying, yes certainly.
Sanjay: The second quarter, I know that takes us slow down a bit but we use that time to further extend the pipeline.
Sanjay: Also building the list with continuously investing in our existing client base.
Sanjay: I strongly believe that our pipeline is installed.
Sanjay: The other part I would highlight is that over.
Sanjay: Several quarters, we have been talking about our focus on events on regional and community space.
Sanjay: In <unk> you had also focusing on the small bank market as well.
Sanjay: The large bank market.
Sanjay: And I strongly believe that our pipeline is more balanced across those three segments stop.
Sanjay: Okay.
Crispin Love: Great. Thank you, Ryan and Sanjay. I appreciate you all taking my questions.
Sanjay: Okay.
Sanjay: Great. Thank you right. It sounded I appreciate you all taking my questions.
Unknown Executive: Please stand by for our next question.
Sanjay: Okay.
Sanjay: Please standby for our next question.
Ryan Kenny: Our next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Hi, thanks for taking my questions. So first question on the Stratos acquisition. Can you give us some color on what differentiates the strategy at Stratos versus some of the other RIA aggregator models that are out there? Yeah, 100% Ryan, I hope you're doing well. Michael Lane's in the room. Feel free to chime in Michael as well.
Operator: Our next question comes from the line up Ryan Kenny with Morgan Stanley. Your line is open.
Ryan Kenny: Hi, Thanks for taking my questions.
So first question on the strata acquisition can you give us some color on what differentiates the strategy yet stratos versus some of the other alright aggregator models that are out there.
Kenny: Yes, 100%, Ryan I hope you're doing well.
Speaker Change: <unk> is in the room feel free to chime in Michael as well I think there are three fundamental things that really attracted us to stratas that we saw is differentiated.
Ryan Hicke: I think there are three fundamental things that really attracted us to Stratos that we saw as differentiated. One was the breadth and experience of their executives. So, this isn't just Jeff Concepcion, who is a phenomenal entrepreneur and leader. You know, we spent a lot of time with this group. They just have a very professional management team, Ryan. They have a COO, a CFO, a head of acquisitions. They are built for the scale that they have actually grown. And we were really excited and energized by that.
Speaker Change: One was the breadth and experience of their executive team. So this isn't just Jeff Concepcio, who is a phenomenal entrepreneur and leader.
Speaker Change: Been a lot of time with this group. They just had a very professional management team Brian They had a CEO CFO ahead of acquisitions. They are built for the scale that they have actually grown and we were really excited and energized by that I think the second thing that differentiated strategies and contracted us to us.
Ryan Hicke: I think the second thing that differentiated Stratos and attracted us to us is that they have not adopted the strategy of, let's go buy a whole bunch of advisors and then try to harmonize it later. They have a centralized investment platform. They have discipline around their value proposition when they bring new advisors on. They see a tremendous amount of value in what SEI can bring to the table with our capabilities around asset management administration. But they really do deserve, I think, a lot of accolades for the discipline in their value proposition and operating model that they drive through the organization.
Speaker Change: They have not adopted the strategy.
Speaker Change: Let's go buy a whole bunch of advisors and then try to harmonize. It later, thank you have a centralized investment platform they have discipline around their value proposition when they bring new advisors on they see a tremendous amount of value in what Sci can bring to the table with our capabilities around asset management administration, but they really do.
Speaker Change: Reserve I think a lot of accolades for the discipline in their value proposition and operating model that they drive through the organization.
Michael Lane: And then I think the third is so important to SEI is cultural fit. The team just really resonates in terms of the values that they hold, the integrity with which they operate. It does feel like they are already part of SEI, and SEI and Stratos kind of have a lot of shared values. But specifically around their business model, Ryan, I would say the first two things and one more kind of the qualitative side would just be the honesty, integrity, and client focus that they have really resonates. Michael, would you? Yeah, I mean, everything Ryan said.
Speaker Change: I think the third is so important to Sci is cultural fit.
Speaker Change: The team just really resonates in terms of the values that they hold the integrity with which they operate it does feel like they are already part of SDI and Sci and strategy.
Speaker Change: And a lot of shared values, but specifically around our business model right I would say the first two things and one more kind of the qualitative side with just the the honesty integrity and client focus that they have really resonates Michael what would you add.
Michael Lane: Plus, I would add that one of the criteria that we were interested in was a group that actually was a hybrid where they had both capabilities available. They could have 1099 as well as W2 because those 1099 advisors at some point are going to look for a succession plan and W2 environment provides that succession plan. And so that is another one of the things that was a key criteria for us that we were searching for when we were first introduced to Stratos. That was another box. All right, great, that's clear.
Ryan Kenny: Ryan said, plus I would add that.
Speaker Change: One of the criteria that we were interested in was a group that actually was a hybrid where they had both capabilities available. They could have 10 99 as well as W. Two because those 10 99 advisors at some point are going to look for a succession plan that W. Two environment provides that succession plan and so that is another one of the things that was a key criteria for us.
Speaker Change: That we were searching for when we first introduced the <unk> that was that was another box is checked.
Speaker Change: Alright, great that's clear and then.
Ryan Hicke: And then you mentioned that Stratos was interested in some of the asset management and servicing capabilities that SEI offers. Should we expect those best result and revenue synergies and any timing on when that could show up? So, your question is if they have an interest in the asset management services, so I don't believe that they have an interest necessarily as much in our IMS under Philip McCabe's business, but what they are very interested in is, since they have a Stratus Investment Management Group, which provides direct indexing and SMA capability, they would like to further scale that and provide additional opportunities to grow that beyond their current mix.
Speaker Change: You mentioned that Kratos was.
Speaker Change: Interested in some of the asset management and servicing capabilities that SDI offers should we expect.
Speaker Change: That result in revenue synergies and any timing on when that could show up.
Speaker Change: So your question is that they have an interest in the asset management services that so I don't believe that they have had.
Speaker Change: And interest necessarily as much in our IMS under filling the cadence business, but what they are very interested in since they had a stratus investment management group, which provides.
Speaker Change: Direct indexing in SMA capability, they would like to further scale that and provide additional opportunities to grow that beyond their current mix and thats, where the combination of our <unk>.
Ryan Hicke: And that's where the combination of our scaled asset management investment management arm, plus their investment management services arm, I think we'll be able to bring a tremendous amount of value scaling that. And there could be opportunities in direct indexing or SMA servicing that we could do at some point in the future, but the primary will be adding additional services and capabilities to their existing Stratus Investment Management business. Our capabilities, Ryan, will absolutely add value and augment that, but there is no rush or urgency to try to accelerate that potentially at the expense of a client experience until we really understand how we could deploy things that actually improve and augment their platform.
Speaker Change: Scaled asset management investment management arm plus their investment management services are I think we will be able to bring a tremendous amount of value of scaling that and there could be opportunities in.
Speaker Change: Direct indexing or SMA servicing.
Speaker Change: Servicing that we could do at some point in the future, but the primary will be adding additional services and capabilities to their existing strict startup investment management business and I would add to that I would actually say, Mike what I've had this conversation yesterday.
Speaker Change: In these scenarios last time synergy gets interpreted as to what costs are we going to rip out that's absolutely not the focus this is a long term strategic investment.
Speaker Change: I have a footprint that we want to occupy in the ecosystem. They have a really great adviser experience and client experience our capabilities, Ryan will absolutely add value and augment that but there is no Russia urgency to try to accelerate that potentially at the expense of in the client experience until we run.
Speaker Change: We understand how we could deploy things that actually improve and augment their platform, particularly a business that has a 10% organic growth rate. The last thing you want to do is disruptive to organic growth. Our goal is to be as least disruptive and is most accretive to them as possible.
Ryan Hicke: Particularly a business that has a 10% organic growth rate, the last thing you want to do is disrupt their organic growth. So our goal is to be as least disruptive and as most accretive to them as possible.
Unknown Executive: Thank you. That's clear. Thanks. Thank you. Please stand by for our next question. As a reminder, ladies and gentlemen, that's star 11 to ask the question.
Speaker Change: Thank you that's clear thanks.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: As a reminder, ladies and gentlemen that start one one to ask the question.
Owen Lau: Our next question comes from the line of Owen Lau with Oppenheimer. Your line is open. Hi, good afternoon, and thank you for taking my question. So going back to the net sales environment, other than private. How would you characterize the sell cycle for other- You also caught out IMS sales were quite strong. on the drive.
Speaker Change: Our next question comes from the line of one law with Oppenheimer. Your line is open.
Speaker Change: Hi, good afternoon, and thank you for taking my question, so going back to the net sales environment other than private banking, how would you characterize the sales cycle for auto segments. You also caught out IMS sales were quite strong could you. Please unpack a bit more on the driver of that.
Speaker Change: Thanks.
Ryan Hicke: Owen, how are you, my friend? Let's take that in a couple stages.
Speaker Change: And how are you my friend.
Philip McCabe: So let's raise it up and go back to the strategic themes for a second. We've been talking a lot the last couple years around macro trends that we believe we were positioned well and that we want to continue to exploit. So if you think about the appetite for outsourcing from alternative investment managers, the demand for better technology and operations for regional community banks that want to compete in wealth, and what the larger enterprise scale RIAs really need to operate as an institution in the future, we feel really strongly positioned there. And I think it harkens back a little bit to Crispin's question to Sean around investments in technology and talent.
Speaker Change: A couple of stages. So that's raised it up and go back to the strategic themes for a second we've been talking a lot. The last couple of years around macro trends that we believe we were positioned well and we want to continue to exploit so if you think about the appetite for outsourcing from alternative investment managers the demand for better technology.
Speaker Change: <unk> operations for regional community banks that want to compete in wealth and what the larger enterprise scale Ria's really need to operate as an institution that future. We feel really strongly positioned there and I think it harkens back a little bit to christine's question to Shawn around investments in technology and talent.
Ryan Hicke: We are also making some more investments in front office talent, revenue generating talent, service talent, because there's just opportunity there. So the places that we have made bets over the last 24 to 36 months, we feel really well positioned and those themes continue to resonate.
Speaker Change: We're also making some more investments in front office talent revenue generating talent service talent because there is just opportunity there. So the places that we have made backs over the last 24 to 36 months, we feel really well positioned on those themes continue to resonate.
Philip McCabe: I think it's always more effective when we talk about specific pipelines and segments to let the unit lead, provide some of their color commentary. I mean, Phil, I mean, it's another great quarter for investment managers. To Owen's question there, you and I were just in New York last week. What are you seeing? What do you kind of see coming up the next few quarters? Okay, thanks, Ryan. So, Owen, normally I would say the pipeline is robust, or I would say it's very, very strong. But to give a little bit more color, at the end of the day, we're very strong in every single product in every single jurisdiction.
Speaker Change: It's always more effective when we talk about specific pipelines and segments to let the unit lease provide some other color commentary I mean, Phil I mean, thats another great quarter for investment managers to Owen's question. There on average just in New York last week. What are you seeing what are you kind of see coming up in the next few quarters. Okay. Thanks Ryan.
Speaker Change: Our normally I would say the pipeline is robust or I would say it is very very strong but to get a little bit more color at the end of the day, we're very strong in every single product in every single jurisdiction. So anything from retail alternatives to collective investment trusts to private assets in general and.
Philip McCabe: So anything from retail alternatives to collective investment trusts to private assets in general, and especially on the alternative side of the business. As Ryan said in his opening remarks, some of the largest alternative managers are in market today looking for a strategic outsourcing partner. So we're in the middle of a lot of those conversations right now. We think a lot of those clients are first-time outsourcers, and we have a pretty large opportunity. We do really, really well in the high end of the market, and we expect to win more than our fair share of those deals over the coming quarters.
Speaker Change: Especially on the alternative side of the business as Brian said in his opening remarks, some of the largest alternative managers are in market today looking for a strategic outsourcing partner. So we're in the middle of a lot of those conversations right now.
Speaker Change: We think.
Speaker Change: A lot of those clients are first time, outsourcers and we have a pretty large opportunity, we do really really well in the high end of the market and we expect to win more than our fair share of those deals over the coming quarters and I think the other thing and then maybe Michael Lane do you want to comment on kind of the sales environment.
Ryan Hicke: And I think, Owen, the other thing, and then maybe Michael Lane, if you want to comment on kind of the sales environment. The other thing coming back to why we are calling out investments in tech and technology and talent, when Phil gives that example, when we're in these situations, those organizations call other organizations and ask them about the experience. And those calls are usually extremely positive when they call for references. And we are going to make sure we protect that experience and referenceability at all costs over the next 9 to 12 months because of what we see happening in the competitive environment.
Speaker Change: The other thing coming back to why we are calling out investments in tech and tech and technology and talent.
Speaker Change: When Phil Gibbs that example, when we're in these situations those organizations call other organizations and ask them about the experience and those calls are usually extremely positive we may call for STI references and we are going to make sure. We protect that experienced some reference ability at all costs over the next nine to 12 months.
Speaker Change: Because of what we see happening in the competitive environment.
Ryan Hicke: And that's important because if we do a flawless conversion and we execute properly, we will get more and more, lots and lots of business from those clients over a longer period of time. So if we don't do it well in the beginning, it'll cost us, but we always do it well. And if you look at the asset management, sorry, if you look at the asset management business, you look at what was mentioned during the earlier comments about the So there's a process of how that flow hits. And so we'll be sharing more information as we go with platform only versus monies moving into models and other types of investments from the RIAs.
Speaker Change: And that's important because if we do a flawless conversion and we execute properly we will get more and more lots and lots of business from those clients over a longer period of time. So if we don't do it well in the beginning it will process, but we always do it well.
Speaker Change: And if you look at the asset management.
Speaker Change: If you look at the asset management business you look at what was mentioned during the earlier comments about the AD.
Speaker Change: The change in sales events from the first half of 'twenty for the first half of 'twenty five.
Speaker Change: When you look at the flow, which is also an important story first six months of 24 in our institutional business was negative $1 3 billion and it was a positive close to $1 billion in the first half of 'twenty five so flows have improved.
Speaker Change: Less losses, and the and the institutional business and the advisor business our flows in the first.
Speaker Change: Half of 2024, we're about $1 billion in the second in the.
Speaker Change: First half of 2025, we're looking closer at $3 billion of flows and so the flows have improved but theres also a process to those flows when you think about the store you were told about we're going up market, we're going to the larger while.
Speaker Change: While the process of how that money will hit and we'll start with custody it'll move into models that will move into all this overtime.
Speaker Change: So there is a process of how that flow kicks in so we'll be sharing more information as we go with platform only versus monies moving into models and other types of investments from the IRS.
Owen Lau: got it, super helpful.
Speaker Change: Yes.
Sean Denham: And it may be another longer term question for capital return and leverage. Would SEI consider deploying and others after closing the deal and use that as a vehicle to make all our investments. And then maybe like after the closing of the partnership, do you have any target leverage or SEI?
Speaker Change: Got it Super helpful. And then maybe another longer term question for capital return and leverage with Sci consider deploying capital to Stratus after closing the deal and use that as a vehicle to make all of our <unk> acquisition.
Speaker Change: And then maybe like after the closing of the partnership.
Speaker Change: Do you have any target leverage or Sci plans to delever back to zero that out the words. Thanks.
Sean Denham: Lever Hey Owen, it's Sean, nice speaking with you. So from a, I think your first question was, is there going to be a capital need with the Stratos partnership? for funding future M&A activity? And I think that's your question. So the answer to that is yes. We we see that as tens of millions, not hundreds So there will be funding that will be needed. And by the way, we want that to continue M&A activity. That's a big reason why we did this deal in partnership with Strato.
Speaker Change: Hey, John Nice speaking with you. So from a I think your first question was is there going to be a capital need with the stratus partnership for for funding future M&A activity and I think that's your question. So the answer to that is yes.
Speaker Change: We see that as tens of millions not hundreds of millions. So there will be funding that will be needed and by the way we want that to continue M&A activity. That's that's a big reason why we did this deal and partnership with strata. So thats.
Sean Denham: So that's number one. What was your second question, Owen? The second one was, do you have a target leverage ratio, or do you want to like pay, just pay that? Yeah, so right now we're about at negative one time. And so the expectation would be to improve that you know, go from negative once to less than that. So I think where we're looking right now to eventually target is to bring some of those cash levels much lower, maybe a run rate of $300 million or so of staying there, using our free cash flow to continue to do stock buyback.
Speaker Change: Number one.
Speaker Change: What was your second question Owen.
Owen: The second one was you are talking about Piper Jaffray, Jeff Yeah, a ratio or do you want to pay to participate under that afterwards.
Jeff: Yes, so right now we're about at negative one time and so the expectation would be to improve that or go from negative one less than that so I think we're in we're looking right now to eventually target is to bring some of those cash levels much lower maybe a run rate of $300 million or so of staying.
Jeff: They're using our free cash flow to continue to do stock stock buyback. That's been obviously as you know a big part of what we've returned to our shareholders and then dividend. So if you want to think free cash flow of $5 to $600 million.
Sean Denham: That's been, obviously, as you know, a big part of what we've returned to our shareholders, and then dividends. So if you want to think free cash flow of $500 million to $600 million, that's probably a good indicator. And we will impact that further at investment.
Jeff: That's probably a good indicator and we will impact that further at Investor day.
Unknown Executive: Thanks a lot. Thank you. Once again, ladies and gentlemen, that's star 11 to ask the question.
Jeff: Sounds great. Thanks, a lot.
Jeff: Thank you.
Speaker Change: Once again, ladies and gentlemen that star one wanted to ask a question.
Ryan Hicke: I'm showing no further questions in the I would now like to turn the call back over to Ryan Hicke for closing remarks. It must be summer with that few questions. Thank you so much for joining us today. And actually for the questions and the continued engagement and energy that we get from everybody. We're really excited about the progress we're making and we're confident in the path ahead. As always, we appreciate your continued interest in SEI.
Speaker Change: I'm showing no further questions in the queue.
Ron: I would now like to turn the call back over to Ron <unk> for closing remarks.
Ron: It must be summer with a few questions. Thank you so much for joining us today and actually for the questions and the continued engagement and energy that we get from everybody, where I'm really excited about the progress, we're making and we're confident in the path ahead as always we appreciate your continued interest in Sci as Sean stepping up.
Ryan Hicke: As Sean said, we look forward to sharing more of our details in the Investor Day in September. Hope everybody has a great evening and enjoys the rest of their summer.
Ron: Forward to share more of our details at the Investor Day in September I Hope everybody has a great evening and enjoy the rest of their summer.
Unknown Executive: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Ron: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Ron: Yeah.
Ron: Okay.
Ron: [music].
Ron: Okay.
Unknown Executive: Thanks for watching!
Ron: Okay.
Ron: [music].