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WIKI ANALYSIS
SEI Investments Company (NASDAQ: SEIC) manages assets for both institutions and wealthy individuals, but unlike other asset managers, the company also sells a suite of software-based services to banks and asset managers to manage their own client account and investment funds. This software has tendrils deep into the back-offices of financial services institutions, where it helps process transactions, and manage regulatory compliance and accounting.
The company's software business has high barriers to entry and high switching costs. New entrants to the market are forced to invest large amounts of capital up-front in order to build out the technology platforms necessary to support the administrative services offered to clients. There is also a considerable amount of integration between the client's systems and the administrator's. It can take up to 15 months for large institutions to disentangle their systems from one administrator and reintegrate them with another. [1] Moreover, switching is not only costly, but carries risks such as disruption of service.
Going forward the company believes that its clients will demand a more fully integrated suite of services (back office, middle office and investing services packaged together in one platform).[2] In 2007, it launched its “Global Wealth Services Platform”[3] which lets institutional investors perform functions like monitoring accounting in multiple currencies, outsourcing global investment processing, and managing model based portfolios in a single platform. The software development costs alone for the "Global Wealth Platform" were 217.8 million dollars[4]. The adoption rate for this platform will play an important role in determining the company's future growth trajectory.
History
Founded in 1968 by current chairman and CEO Alford West, SEI Investments broke into the industry by creating the first computer-simulated training technology for loan officers.[5] This was shortly followed by the creation of a completely automated accounting system which provided an improved alternative to the industry standard of “paper and pencil” accounting.[6] In the 1990’s SEIC began managing individual and institutional assets while becoming one of the first companies to offer the Manager-of-Managers concept in the asset management field.[7]
Business Financials
Segment Information
SEI Investment Company divides its operations in 5 main segments based on geographic location and client group.
Investment Processing (International) - includes all operations outside of the United States and consists primarily of investment processing and administered asset programs for private banks and trust institutions. [10] This segment represented 30% of revenues in 2007 and is the largest target market for the "Global Wealth Platform".
Investment Management (Individuals) - through a network of independent registered investment advisors and financial planners the company provides asset management programs to affluent individual investors within the United States and abroad. In 2007 this segment accounted for 19% of total revenues.
Investment Management (Pensions) - this business segment made up 15% of total revenues in 2007 and consists both of asset management and administrative outsourcing services for pensions and not profit organizations.
Investment Processing (Domestic) - includes investment processing, fund processing and operational outsourcing for hedge funds, fund of funds, and private equity funds.
LSV Asset Management- a subsidiary of SEI Investment Company LSV Asset Management is a registered investment adviser that provides services to institutions, pensions, and other investment companies. [11] In 2007 LSV Asset Management made up 25% of SEI Investment Company's net profits.
Asset Management Information
Assets under management and assets under administration have grown steadily over the past three years, a portion of this growth can be attributed to SEI Investment Company's expansion into the European private bank market [12] in 2007 and its launch of the Global Wealth Platform that same year.[13]
| Year | Assets Under Management (billions US$) | Assets Under Administration (billions US$) |
|---|---|---|
| FY2005 | $148.5 | $163.5 |
| FY2006 | $181.5 | $185.1 |
| FY2007 | $196.8 | $229.4 |
Trends and Forces
Financial Industry Consolidation Limits the Size of SEI's Target Market
The ability to serve a wide variety of financial institutions, which include pension funds, private banks, large asset managers, and endowments is crucial to the company's success. Increased consolidation within the financial services industry would lead more asset managers to bring their record keeping, accounting, and investment processing in house as opposed to continuing to outsource the service.[16]
SEIC Bets Big on New Technology Platform
SEIC provides a variety of services ranging from back office (accounting) to middle office (compliance) to front office (actual investment management). The company believes that its clients are looking for a more fully integrated suit of services that incudes all three types of services in one easy to platform. Over the last several years the company has spent several hundreds of millions of dollars to develop its global wealth services platforms. The firm's future growth trajectory will be determined in large part by the success of this platform.
High Barriers to Entry Help Protect Market Niche
The significant capital requirements needed to create and launch an investment processing platform or service makes it difficult for new competitors to enter into SEICs niche. Along with the high barriers to entry there are also high switching costs in this line of business. It typically takes up to 15 months for a larger company to switch investment processing systems[17] and once a company agrees to use SEIC's investment processing system the client is locked in to a contract for up to 5 years.[18]
Competitor Analysis
SEI Investment Company operates in many different segments within the financial services industry and as a result has a different set if competitors within each of these segments. In the investment management segment its principle competitors are PNC Bank [19] and State Street. [20] In the investment advisory segment of financial services SEI Investment Company's main competitors are Fidelity Investments[21] and Bank of New York Melon.[22] In investment processing SEIC competes mainly with proprietary in house systems developed by large financial institutions[23], however smaller companies like SunGard Data Systems Inc. and Odyssey Technologies provide competition as well. [24] Given SEI Investment Company's variety of financial services there are few companies with comparable business models, those that are the most closely related are PNC Bank, State Street, Federated Investors Inc., and Bank of New York Melon.
| Company | Assets Under Management | 2007 Revenue | 2007 Total Assets | 2007 Total Liabilities | 2007 Net Income |
|---|---|---|---|---|---|
| SEI Investment Company [25] | $196.8B | $.414B | $1,525,370,000 | $495,980,000 | $259,810,000 |
| Federated Investors Inc. [26] [27] | $.236B | $1.13B | $840,970,000 | $266,960,000 | $217,470,000 |
| State Street [28] [29] | $1,980B | $8.34B | $142,543,000,000 | $131,244,000,000 | $1,261,000,000 |
| PNC Bank [30] [31] | $73B | $3.8B | $138,920,000,000 | $124,066,000,000 | $1,467,000,000 |
| Bank of New York Melon [32] [33] | $1,121B | $6.82B | $197,656,000,000 | $168,253,000,000 | $2,847,000,000 |
References
- ↑ SEIC 10K 2007 Page 6-7
- ↑ SEIC 2007 10-K, pg 4
- ↑ SEIC 10K 2007 Page 45
- ↑ SEIC 10K 2007 Page 45
- ↑ http://www.seic.com History
- ↑ http://www.seic.com History
- ↑ http://www.seic.com History
- ↑ SEIC 10K 2007 Page 15
- ↑ SEIC 10K 2007 Page 16
- ↑ SEIC 10K 2007 Page 16
- ↑ SEIC 10K 2007 Page 16
- ↑ SEIC 10K 2007 Page 4
- ↑ SEIC 10K 2007 Page 45
- ↑ SEIC 10K 2007 Page 22
- ↑ SEIC 10K 2007 Page 22
- ↑ SEIC 10K 2007 Pages 10 & 11
- ↑ SEIC 10K 2007 Page 6
- ↑ SEIC 10K 2007 Page 7
- ↑ SEIC 10K 2007 Page 8
- ↑ SEIC 10K 2007 Page 8
- ↑ SEIC 10K 2007 Page 7
- ↑ SEIC 10K 2007 Page 7
- ↑ SEIC 10K 2007 Page 6
- ↑ SEIC 10K 2007 Page 6
- ↑ SEIC 10K 2007 Page 38
- ↑ Google Finance (FII)
- ↑ [1]
- ↑ Google Finance (STT)
- ↑ [2]
- ↑ Google Finance (PNC)
- ↑ [3]
- ↑ Google Finance (BK)
- ↑ [4]
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