Q4 2024 Earnings Summary
- Strong Net Sales Growth and Momentum: SEI Investments reported $38 million in net sales events in Q4 2024, driven by a mix of new clients and growth from existing clients across both domestic and global markets. The company maintains a consistent pricing strategy and focuses on delivering value to clients, contributing to its real momentum. Executives expressed confidence in the sales pipelines and strategic growth initiatives, positioning SEI well for continued growth in 2025.
- Continued Double-Digit Growth in Private Banking with Improved Client Retention: The Private Banking segment continues to experience double-digit growth, bolstered by high client retention and deeper client engagement. By focusing on segment-specific growth initiatives and positioning SEI as a strategic partner rather than just a vendor, the company has enhanced its relationships with clients, leading to sustained growth through existing clients and reduced attrition in this segment.
- Significant Growth in Alternative Investment Servicing: SEI's Investment Managers segment is capitalizing on industry tailwinds in alternative investments. The alternatives business accounts for approximately 70% of the segment's revenue and is growing due to factors such as globalization, retail alternatives, private assets, and the convergence of public and private markets. SEI's investments in global offerings, particularly in Luxembourg, have positioned it as the seventh largest private asset administrator in that space within a few years, indicating strong competitive positioning and growth prospects.
- Structural headwinds in the Institutional Investors business due to continued plan terminations in the defined benefit space are expected to persist through 2025, as higher interest rates encourage clients to annuitize their plans, leading to asset outflows.
- The Integrated Cash Program's contribution to revenue is expected to moderate in 2025, as balances stabilize around $2 to $2.1 billion and clients explore alternative cash options, potentially reducing a significant source of recent revenue growth.
- Near-term margin pressure is anticipated due to increased expenses associated with onboarding new clients from strong sales events, with costs recognized before revenue, potentially affecting margins in 2025.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Integrated Cash Program Contribution | Q4 2024 | no prior guidance | nearly double the $11 million realized in Q3 2024 | no prior guidance |
LSV Performance Fees | Q4 2024 | no prior guidance | do not expect a similar large performance fee in Q4 2024 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Net sales momentum | Strong net sales events across Q1–Q3 (e.g., Q3: $46M) with broad-based wins. | Maintained strong momentum in Q4, totaling $38M in net sales, 60% higher vs prior year. | Consistently positive and accelerating. |
Private banking growth | Emphasized revenue growth, margin improvement (aiming for 30%), and high client retention in prior quarters. | Continued margin improvements and enterprise mindset; strong sales from regional/community banks. | Sustained focus on growth and profitability. |
RIA segment expansion | Continued advisor onboarding, e.g., 114 new advisers in Q3; opportunities from market consolidation. | No mention in Q4. | Previously highlighted expansion; overshadowed in Q4. |
Alternative investments servicing | Growing tailwinds from private credit, retailization, and global expansion in prior calls. | 70% of IMS revenue from alternatives; strong global traction and private asset administration. | Continually growing with broad industry momentum. |
Institutional investors headwinds | Defined benefit annuitizations and plan terminations noted each quarter, offset by some wins. | Continued headwinds as DB plans annuitize given high interest rates. | Ongoing pressure from plan terminations. |
Integrated/FDIC insured cash program | Rapid balance growth ($850M in Q1 to $2.4B in Q3), significant income contribution. | Ended Q4 at $2.4B with 380 bps yield, expecting $2.0–$2.1B average balance in 2025. | Gaining traction with continued revenue impact. |
Margin expansion and near-term margin pressures | Prior quarters saw improved margins but also one-time benefits; focus on efficiency. | Reiterated margin expansion yet near-term costs from onboarding and compensation. | Balancing growth investments vs. short-term pressure. |
One-time items and earnings sustainability | Notable one-time gains (e.g., real estate sale, LSV fees), severance costs, and healthcare credits in prior quarters. | $0.04 from incentive comp, $0.05 from stock comp, partially offset by FX and tax benefits, impacting margins by 210 bps. | Recurring theme of adjustments; underlying fundamentals remain strong. |
Fee rate changes in advisor segment | Q2–Q3 included SMA repricing and tweaks to investor credit rates; broader industry price compression. | No fee changes reported in Q4; remained consistent with value proposition. | Stabilized after prior adjustments. |
Shift from mutual funds to ETFs | Ongoing headwind for active mutual funds; noted negative net sales from mutual funds in Q1/Q2. | Brief mention of clients migrating to passive/ETF solutions; SEI retains an overlay fee. | Continuing migration, though less highlighted in Q4. |
AI and automation initiatives | Q1–Q3 included AI investments, automation for efficiency, and strategic partnerships. | No mention in Q4. | Ongoing initiatives, not discussed in Q4. |
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Margin Outlook
Q: How will upfront costs from strong net sales impact 2025 margins?
A: SEI expects near-term margin pressure due to upfront costs associated with onboarding new clients from strong net sales events. The revenue from these sales typically takes 3 to 18 months to come online, depending on the business unit, leading to expenses occurring ahead of revenue realization. Despite these costs, SEI remains confident in continuing margin expansion in 2025. -
Capital Management Strategy
Q: Does record Q4 share buyback signal a shift in capital strategy or potential for increased M&A in 2025?
A: SEI repurchased a record amount of shares in Q4, primarily in December, due to significant free cash flow. While they believe buybacks are a good use of capital and may accelerate them, SEI continues to evaluate capital needs quarterly and is open to M&A opportunities if they arise, maintaining a flexible approach to capital allocation. -
Sales Environment & 2025 Outlook
Q: What drove the strong Q4 net sales, and what's the sales outlook for 2025?
A: SEI achieved strong Q4 net sales of $38 million, driven by a mix of new clients and growth from existing clients across units and geographies, including notable traction in non-U.S. markets. They have not changed pricing, maintaining consistency and confidence in their value proposition. SEI feels "really, really positive" about engagement levels, sales pipelines, and the breadth of market activity, indicating a strong sales outlook for 2025. -
Private Bank Client Retention
Q: Is the improved client retention in private banks due to luck or deliberate actions?
A: SEI attributes the improved client retention in private banks to deliberate efforts, including aggressive engagement with clients, elevating relationships within organizations, and showcasing a broader set of capabilities. By repositioning SEI from being viewed as a vendor to a strategic partner, they have enhanced client relationships, which is sustainable and not a result of luck. -
Alternative Servicing Growth
Q: How significant is alternative servicing in IMS, and what differentiates SEI's offering?
A: Alternative servicing accounts for about 70% of IMS revenue and is growing due to industry trends like globalization and private assets growth. SEI's investments in international talent, especially in Europe, have led to the best quarter and year for their international team. Their Luxembourg offering is robust, making them the seventh largest private asset administrator there within just 2–3 years, differentiating them through scale and rapid growth. -
Bank M&A Impact on SEI
Q: How is SEI positioned for bank M&A and consolidation over the next few years?
A: SEI views increasing bank M&A activity as positive, presenting two opportunities: assisting existing clients who acquire others by managing technology transfer and onboarding, and convincing acquirers of SEI clients to adopt SEI's platform. They are leveraging these opportunities to expand their business amid industry consolidation. -
Incentive Compensation Expense
Q: Is the elevated Q4 incentive compensation expense a one-off event?
A: The elevated incentive compensation in Q4 is considered a one-off event, resulting from a shift to a horizontal strategy and a great fiscal year, with the board unanimously approving the rewards. While they will assess this annually, SEI does not expect a recurrence of this expense level necessarily but aims to continue rewarding workforce achievements. -
Institutional Investors Terminations
Q: What's driving the large terminations in institutional investors, and will it continue?
A: The terminations are driven by headwinds in the defined benefit space, where high funding rates over 110–115% prompt clients to annuitize liabilities. This trend may persist through 2025 due to elevated rates, and while timing is difficult to predict, SEI expects continued headwinds in this area. -
Integrated Cash Program Outlook
Q: What's the progress and outlook for the integrated cash program in 2025?
A: SEI's integrated cash program had an average balance of about $2.18 billion during the quarter, ending near $2.4 billion. Going into 2025, they project a normalized run rate between $2 to $2.1 billion, not anticipating further significant conversions. The net yield on the program is approximately 380 basis points currently. -
Asset Management Opportunities
Q: What are the recent takeaways on opportunities in asset management based businesses?
A: SEI has identified areas of overlap to consolidate and reallocate savings into new markets. They aim to leverage the scale of their banking business, with $7 trillion on their wealth platform, to target large firms previously unaddressed, offering technology, custody, and investment solutions. Collaboration across business units is enhancing these initiatives. -
Private Banking Growth Strategy
Q: Can SEI sustain double-digit growth in private banking, and how has client retention improved?
A: SEI believes they can maintain momentum in private banking growth through consistent strategy focused on deepening client engagement, expanding services with existing clients, and targeted segment-specific growth initiatives. Client retention is high due to improved engagement across operational, technological, and business aspects, positioning SEI as a true partner.
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