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MarketScreener Homepage  >  Equities  >  Nasdaq  >  SEI Investments Company    SEIC

SEI INVESTMENTS COMPANY

(SEIC)
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SEI INVESTMENTS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

10/26/2020 | 03:20pm EST
(In thousands, except asset balances and per share data)
This discussion reviews and analyzes the consolidated financial condition, the
consolidated results of operations and other key factors that may affect future
performance. This discussion should be read in conjunction with the Consolidated
Financial Statements, the Notes to the Consolidated Financial Statements and the
Annual Report on Form 10-K for the year ended December 31, 2019.

Overview

Consolidated Summary
SEI is a leading global provider of technology-driven wealth and investment
management solutions. We deliver comprehensive platforms, services and
infrastructure - encompassing investment processing, investment operations and
investment management - to help wealth managers, financial advisors, investment
managers, institutional and private investors create and manage wealth.
Investment processing fees are earned as either monthly fees for contracted
services or as a percentage of the market value of our clients' assets processed
on our platforms. Investment operations and investment management fees are
earned as a percentage of assets under management, administration or advised
assets (See Note 13 to the Consolidated Financial Statements for more
information pertaining to our revenues). As of September 30, 2020, through our
subsidiaries and partnerships in which we have a significant interest, we
manage, advise or administer $1.1 trillion in hedge, private equity, mutual fund
and pooled or separately managed assets, including $330.2 billion in assets
under management and $754.5 billion in client assets under administration. Our
affiliate, LSV Asset Management (LSV), manages $82.1 billion of assets which are
included as assets under management.
Our Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2020 and 2019 were:
                                      Three Months Ended September 30,                                                    Nine Months Ended September 30,
                                          2020                2019                             Percent Change*    2020                     2019                 Percent Change*
Revenues                              $  424,927$ 416,254             2%           $      1,240,335$   1,226,660               1%
Expenses                                 313,590            295,617             6%                    918,458                  882,326               4%
Income from operations                   111,337            120,637            (8)%                   321,877                  344,334              (7)%
Net gain (loss) from investments             776                611             27%                    (1,310)                   2,121               NM
Interest income, net of interest
expense                                      856              4,013            (79)%                    5,126                   12,260              (58)%
Equity in earnings from
unconsolidated affiliate                  28,305             37,609            (25)%                   86,488                  112,758              (23)%
Income before income taxes               141,274            162,870            (13)%                  412,181                  471,473              (13)%
Income taxes                              30,178             30,702            (2)%                    90,777                   98,784              (8)%
Net income                               111,096            132,168            (16)%                  321,404                  372,689              (14)%

Diluted earnings per common share $ 0.75$ 0.86

    (13)%         $           2.14            $        2.40

(11)%



* Variances noted "NM" indicate the percent change is not meaningful.
The following items had a significant impact on our financial results for the
three and nine months ended September 30, 2020 and 2019:
•Revenue from Asset management, administration and distribution fees increased
primarily from higher average assets under administration from positive cash
flows from new and existing clients in the Investment Managers segment. Our
average assets under administration increased $73.1 billion, or 12%, to $697.0
billion in the first nine months of 2020 as compared to $623.9 billion during
the first nine months of 2019.
•Our average assets under management, excluding LSV, increased $8.4 billion to
$236.7 billion in the first nine months of 2020 as compared to $228.3 billion
during the first nine months of 2019. The increase was primarily due to market
appreciation from the strong recovery of capital markets during the third
quarter 2020 from the downturn caused by the emergence of the COVID-19 pandemic.
•Information processing and software servicing fees in our Private Banks segment
decreased by $10.8 million during the first nine months of 2020 due to
previously announced client losses.
•Our proportionate share in the earnings of LSV decreased to $86.5 million in
the first nine months of 2020 as compared to $112.8 million in the first nine
months of 2019 due to lower assets under management from negative cash flows
from existing clients, market volatility caused by the COVID-19 pandemic and
client losses.




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•We continue to invest in new business opportunities such as our One SEI
strategy and IT Services offering. The majority of these costs are recorded in
the Investments in New Businesses segment and are included in Consulting,
outsourcing and professional fees on the accompanying Consolidated Statements of
Operations.
•Our operating expenses in our Investment Managers segment increased primarily
due to higher personnel costs to service new clients.
•Travel and promotional-related expenses declined by $11.9 million during the
first nine months of 2020 as our sales and client relationship personnel adapted
to COVID-19 restrictions.
•We capitalized $17.2 million in the first nine months of 2020 for the SEI
Wealth Platform as compared to $26.0 million in the first nine months of 2019.
Amortization expense related to SWP increased to $32.6 million during the first
nine months of 2020 as compared to $31.6 million during the first nine months of
2019.
•Our effective tax rate during the third quarter of 2020 was 21.4% as compared
to 18.9% during the third quarter of 2019. Our tax rate was 22.0% during the
first nine months of 2020 as compared to 21.0% during the first nine months of
2019. The increase in our tax rate for both periods was primarily due to an
increase in our state effective tax rate. Our third quarter 2020 tax rate was
also impacted by decreased tax benefits associated with stock option exercises.
•We continued our stock repurchase program during 2020 and purchased 6.2 million
shares for $325.6 million in the nine month period.

Impact of COVID-19 and Other Events
The occurrence of unforeseen or catastrophic events, including the emergence of
a pandemic or other widespread health emergency or concerns over the possibility
of such an emergency, could create economic and financial disruptions, and could
lead to operational difficulties that could impair our ability to manage our
business. In December 2019, a novel strain of coronavirus (COVID-19) was
identified in Wuhan, China. COVID-19 quickly spread globally, leading the World
Health Organization to declare the COVID-19 virus outbreak a global pandemic in
March 2020. Since that time, governmental authorities have implemented numerous
and varying measures to stall the spread and ameliorate the impact of COVID-19,
including travel bans and restrictions, quarantines, curfews, shelter in place
and safer-at-home orders, business shutdowns and closures, and have also
implemented multi-step policies with the goal of re-opening domestic and global
markets. Certain jurisdictions have begun re-opening only to return to
restrictions in the face of increases in new COVID-19 cases. Recent developments
include the phased re-opening of domestic and global markets to varying degrees.
In March 2020, we executed upon our business resiliency and contingency plans.
To date, our remote capabilities have proven to be effective during the
disruption caused by the COVID-19 pandemic with almost the entire workforce
working remotely, with only a very limited number of on-site activities in our
operational offices continuing to be performed.
We continue to closely monitor the domestic and international landscape for
changes in governmental measures both in the United States and in the locations
where we rely on critical outsourced services. We continue to be in regular
contact with regulators, clients and vendors to confirm the measures taken to
continue operating during this crisis, taking into consideration the latest
announcements from state and federal authorities. We are also in continuous
communication with our workforce to provide for the health and welfare of our
employees working remotely and have implemented a return plan that is available
for review on our website for those employees working in our operational
offices. Currently, we have approximately 250 employees that routinely work out
of our offices world-wide. We will monitor the ability of these individuals to
work as safely as possible at our offices and make adjustments to the number of
on-site personnel (either increases or decreases) accordingly. We expect that
the individual circumstances of our employees regarding school, childcare,
care-giving and underlying health concerns will significantly impact our ability
to return staff to their primary office locations.
The majority of our revenues are based on the value of assets invested in
investment products that we manage or administer which are affected by changes
in the capital markets and the portfolio strategy of our clients or their
customers. The market volatility in response to measures taken to contain the
spread of COVID-19 negatively impacted our asset-based fee revenues and
partially offset our revenue growth. Additionally, changes in the portfolio
strategy of our clients or their customers in response to market volatility
resulted in asset flows into our lower margin liquidity products and negatively
impacted our earnings.
While we have developed and implemented and continue to develop and implement
health and safety protocols, business continuity plans and crisis management
protocols designed to mitigate the potentially negative impact of COVID-19 to
our employees and our business, the extent of the impact of the pandemic on our
business and financial results will continue to depend on numerous evolving
factors that we are not able to accurately predict and which will vary by
market, including the duration and scope of the pandemic, global economic
conditions during and after the pandemic, governmental actions




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that have been taken, or may be taken in the future, in response to the
pandemic, the extent that critical public and private infrastructure functions
upon which we rely are suspended and changes in investor and consumer behavior
in response to the pandemic. The resulting market conditions may adversely
affect our revenues and earnings derived from assets under management and
administration.
On May 17, 2020, M.J. Brunner (Brunner), one of our third-party
developers/vendors that provides development services and application management
for two of our client applications, experienced a ransomware attack. We are
aware that certain client data was illegally accessed and revealed by
cybercriminal(s). The applications themselves were not compromised by this
attack. We take our clients' security very seriously, and we continue to work
with Brunner, the FBI and our impacted clients to understand the extent to which
SEI's or our clients' data has been exposed. We are also working with the
appropriate parties with respect to notification and remediation protocols. The
root cause of the attack was not predicated on vulnerability within SEI's
network, and neither SEI's network nor operations were compromised, attacked or
otherwise affected as part of this incident. While there were direct and
indirect expenses associated with the incident in the second and third quarters
of 2020, and we expect there will continue to be costs associated with the
incident going-forward, it is not expected these will be material. We note that
several regulatory bodies who routinely review our operations, including the
Securities and Exchange Commission (SEC) and the United States Federal Financial
Institutions Examination Council (FFIEC), have requested information with
respect to, and are investigating the facts and circumstances surrounding, the
ransomware attack on Brunner. We have begun producing documents and information
to these bodies regarding this matter. We expect to continue to engage in
discussions with these bodies and that we may be contacted by, engage with and
provide information to additional governmental or regulatory bodies or
authorities.
On July 1, 2020, one of our storage arrays supported by our third party vendor,
Dell-EMC, failed due to the operation of an application deployed by the vendor
as part of our production infrastructure. As a consequence of the hardware
failure, transactional activities on our platforms were extremely limited on
July 1st and 2nd. All systems are currently on-line and 100% functional. This
event was not caused by a third-party actor. While there were direct and
indirect expenses in the quarter, and we expect there will continue to be costs
associated with the outage going-forward, it is not expected these will be
material. In response to the outage, we have launched a project internally, that
will be supported by third-party experts, to identify tactical and strategic
improvements that we should make across our enterprise technology footprint,
including a review and improvement of our technical and operational resiliency
plans and capabilities. We expect that this work will lead to recommendations
that will result in additional investments of capital in hardware, software and
personnel. We expect these costs will include both new investments as well as a
reprioritization of current spend. Currently, we are not able to fully-estimate
the total amount of additional expense as this will be part of an ongoing
strategy around recovery and resiliency.





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Ending Asset Balances
(In millions)
                                                                        As of September 30,
                                                                     2020                 2019                        Percent Change
Private Banks:
Equity and fixed-income programs                                $    23,499$    22,580              4%
Collective trust fund programs                                            6                    4             50%
Liquidity funds                                                       3,718                3,695              1%
Total assets under management                                   $    27,223$    26,279              4%
Client assets under administration                                   24,174               23,985              1%
Total assets                                                    $    51,397$    50,264              2%
Investment Advisors:
Equity and fixed-income programs                                $    65,581$    65,059              1%
Collective trust fund programs                                            3                    4            (25)%
Liquidity funds                                                       3,866                2,673             45%
Total assets under management                                   $    69,450$    67,736              3%
Institutional Investors:
Equity and fixed-income programs                                $    83,846$    82,659              1%
Collective trust fund programs                                          101                   81             25%
Liquidity funds                                                       2,096                2,290             (8)%
Total assets under management                                   $    86,043$    85,030              1%
Client assets under advisement                                        3,618                4,467            (19)%
Total assets                                                    $    89,661$    89,497              -%
Investment Managers:
Collective trust fund programs                                  $    63,277$    53,169             19%
Liquidity funds                                                         389                  477            (18)%
Total assets under management                                   $    63,666$    53,646             19%
Client assets under administration (A)                              730,369              637,986             14%
Total assets                                                    $   794,035$   691,632             15%
Investments in New Businesses:
Equity and fixed-income programs                                $     1,572$     1,621             (3)%
Liquidity funds                                                         169                  132             28%
Total assets under management                                   $     1,741$     1,753             (1)%
Client assets under advisement                                        1,179                  825             43%
Total assets                                                    $     2,920$     2,578             13%

LSV:

Equity and fixed-income programs (B)                            $    82,051$   100,295            (18)%

Total:

Equity and fixed-income programs (C)                            $   256,549$   272,214             (6)%
Collective trust fund programs                                       63,387               53,258             19%
Liquidity funds                                                      10,238                9,267             10%
Total assets under management                                   $   330,174$   334,739             (1)%
Client assets under advisement                                        4,797                5,292             (9)%
Client assets under administration (D)                              754,543              661,971             14%

Total assets under management, advisement and administration $ 1,089,514

         $ 1,002,002              9%






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(A)Client assets under administration in the Investment Managers segment include
$51.1 billion of assets that are at fee levels below our normal full service
assets (as of September 30, 2020).
(B)  Equity and fixed-income programs include assets managed by LSV in which
fees are based on performance only. The ending value of these assets as of
September 30, 2020 was $1.6 billion.
(C)  Equity and fixed-income programs include $7.5 billion of assets invested in
various asset allocation funds at September 30, 2020.
(D)  In addition to the numbers presented, SEI also administers an additional
$11.5 billion in Funds of Funds assets (as of September 30, 2020) on which SEI
does not earn an administration fee.




                                       33
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Average Asset Balances
(In millions)
                                       Three Months Ended September 30,                                                     Nine Months Ended September 30,
                                           2020                 2019                              Percent Change    2020                    2019                  Percent Change
Private Banks:
Equity and fixed-income programs      $     23,740$  22,432              6%           $        23,542$     22,117

6%

Collective trust fund programs                   7                  4             75%                         5                       4               25%
Liquidity funds                              3,948              3,625              9%                     3,965                   3,573               11%

Total assets under management $ 27,695$ 26,061

       6%           $        27,512$     25,694

7%

Client assets under administration          25,295             23,717              7%                    24,651                  22,980                7%
Total assets                          $     52,990$  49,778              6%           $        52,163$     48,674                7%
Investment Advisors:
Equity and fixed-income programs      $     64,479$  64,761              -%           $        62,280$     61,971

-%

Collective trust fund programs                   3                  5            (40)%                        3                       5              (40)%
Liquidity funds                              4,569              2,580             77%                     4,925                   3,781               30%

Total assets under management $ 69,051$ 67,346

       3%           $        67,208$     65,757

2%

Institutional Investors:
Equity and fixed-income programs      $     82,830$  82,398              1%           $        79,931$     82,240

(3)%

Collective trust fund programs                 102                 80             28%                        96                      79               22%
Liquidity funds                              2,120              2,287             (7)%                    2,313                   2,335               (1)%

Total assets under management $ 85,052$ 84,765

       -%           $        82,340$     84,654

(3)%

Client assets under advisement               3,565              3,797             (6)%                    3,562                   3,644               (2)%
Total assets                          $     88,617$  88,562              -%           $        85,902$     88,298               (3)%
Investment Managers:
Collective trust fund programs        $     62,028$  52,587             18%           $        57,347$     50,006               15%
Liquidity funds                                565                460             23%                       555                     505               10%
Total assets under management         $     62,593$  53,047
      18%           $        57,902$     50,511

15%

Client assets under administration
(A)                                        713,528            630,328             13%                   672,309                 600,967               12%
Total assets                          $    776,121$ 683,375             14%           $       730,211$    651,478               12%
Investments in New Businesses:
Equity and fixed-income programs      $      1,560$   1,609             (3)%          $         1,564            $      1,480                6%
Liquidity funds                                180                142             27%                       177                     174                2%

Total assets under management $ 1,740$ 1,751

      (1)%          $         1,741            $      1,654

5%

Client assets under advisement               1,206                842             43%                     1,192                     822               45%
Total assets                          $      2,946$   2,593             14%           $         2,933            $      2,476               18%
LSV:

Equity and fixed-income programs (B) $ 83,536$ 100,094

      (17)%          $        83,997$    102,510

(18)%

Total:

Equity and fixed-income programs (C) $ 256,145$ 271,294

      (6)%          $       251,314$    270,318

(7)%

Collective trust fund programs              62,140             52,676             18%                    57,451                  50,094               15%
Liquidity funds                             11,382              9,094             25%                    11,935                  10,368               15%

Total assets under management $ 329,667$ 333,064

      (1)%          $       320,700$    330,780

(3)%

Client assets under advisement               4,771              4,639              3%                     4,754                   4,466               

6%

Client assets under administration
(D)                                        738,823            654,045             13%                   696,960                 623,947              

12%

Total assets under management,
advisement and administration         $  1,073,261$ 991,748              8%           $     1,022,414$    959,193                7%






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(A)  Average client assets under administration in the Investment Managers
segment for the three months ended September 30, 2020 include $50.4 billion that
are at fee levels below our normal full service assets.
(B)  Equity and fixed-income programs include assets managed by LSV in which
fees are based on performance only. The average value of these assets for the
three months ended September 30, 2020 was $1.6 billion.
(C)  Equity and fixed-income programs include $7.5 billion of average assets
invested in various asset allocation funds for the three months ended
September 30, 2020.
(D)  In addition to the numbers presented, SEI also administers an additional
$11.4 billion of average assets in Funds of Funds assets for the three months
ended September 30, 2020 on which SEI does not earn an administration fee.
In the preceding tables, assets under management are total assets of our clients
or their customers invested in our equity and fixed-income investment programs,
collective trust fund programs, and liquidity funds for which we provide asset
management services through our subsidiaries and partnerships in which we have a
significant interest. Assets under advisement include assets for which we
provide advisory services through a subsidiary to the accounts but do not manage
the underlying assets. Assets under administration include total assets of our
clients or their customers for which we provide administrative services,
including client fund balances for which we provide administration and/or
distribution services through our subsidiaries and partnerships in which we have
a significant interest. The assets presented in the preceding tables do not
include assets processed on SWP and are not included in the accompanying
Consolidated Balance Sheets because we do not own them.

Business Segments
Revenues, Expenses and Operating Profit (Loss) for our business segments for the
three and nine months ended September 30, 2020 compared to the three and nine
months ended September 30, 2019 were as follows:
                                       Three Months Ended September 30,                            Percent              Nine Months Ended September 30,               Percent
                                           2020                   2019                              Change     2020                       2019                  Change
Private Banks:
Revenues                            $       114,792$ 117,250            (2)%          $ 335,739$    351,601                 (5)%
Expenses                                    113,066             110,788             2%             331,442                 329,540                  1%
Operating Profit                    $         1,726           $   6,462            (73)%         $   4,297$     22,061                 (81)%
Operating Margin                                  2   %               6  %                               1  %                    6     %
Investment Advisors:
Revenues                            $       103,189$ 103,033             -%           $ 299,218$    297,916                  -%
Expenses                                     51,519              51,509             -%             154,100                 154,569                  -%
Operating Profit                    $        51,670$  51,524             -%           $ 145,118$    143,347                  1%
Operating Margin                                 50   %              50  %                              48  %                   48     %
Institutional Investors:
Revenues                            $        79,583$  80,337            (1)%          $ 235,309$    241,559                 (3)%
Expenses                                     37,812              37,268             1%             113,016                 115,383                 (2)%
Operating Profit                    $        41,771$  43,069            (3)%          $ 122,293$    126,176                 (3)%
Operating Margin                                 52   %              54  %                              52  %                   52     %
Investment Managers:
Revenues                            $       123,846$ 112,186             10%          $ 359,815$    326,037                  10%
Expenses                                     79,838              71,889             11%            228,795                 209,326                  9%
Operating Profit                    $        44,008$  40,297             9%           $ 131,020$    116,711                  12%
Operating Margin                                 36   %              36  %                              36  %                   36     %
Investments in New Businesses:
Revenues                            $         3,517           $   3,448             2%           $  10,254$      9,547                  7%
Expenses                                     13,315               7,926             68%             37,691                  20,663                  82%
Operating Loss                      $        (9,798)$  (4,478)            NM           $ (27,437)$    (11,116)                 NM

For additional information pertaining to our business segments, see Note 9 to the Consolidated Financial Statements.

                                       35
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Private Banks
                                         Three Months Ended September 30,                        Percent            Nine Months Ended September 30,             Percent
                                             2020                2019                             Change     2020                    2019                 Change
Revenues:
Information processing and software
servicing fees                           $   81,811$  82,503            (1)%         $ 238,099$    248,850              (4)%
Asset management, administration &
distribution fees                            32,981             34,747            (5)%            97,640                 102,751              (5)%
Total revenues                           $  114,792$ 117,250            (2)%         $ 335,739$    351,601              (5)%


Revenues decreased $2.5 million, or 2%, in the three month period and decreased
$15.9 million, or 5%, in the nine month period ended September 30, 2020 and were
primarily affected by:
•Decreased investment processing fees from the loss of clients;
•Decreased investment management fees from existing international clients due to
negative cash flows and the significant market volatility during 2020; and
•Lower recurring investment processing fees earned on our mutual fund trading
solution; partially offset by
•Increased investment processing fees from new SWP client conversions and growth
from existing SWP clients.
Operating margins decreased to 2% compared to 6% in the three month period and
decreased to 1% compared to 6% in the nine month period. Operating income
decreased by $4.7 million, or 73%, in the three month period and decreased $17.8
million, or 81%, in the nine month period and was primarily affected by:
•A decrease in revenues; and
•Increased costs, mainly personnel and consulting costs, related to maintenance,
support and client migrations to SWP; partially offset by
•Decreased direct expenses associated with decreased investment management fees
from existing international clients; and
•Decreased promotion and travel costs due to COVID-19 restrictions.

Investment Advisors
                                   Three Months Ended September 30,                        Percent            Nine Months Ended September 30,             Percent
                                       2020                2019                             Change     2020                    2019                 Change
Revenues:
Investment management fees-SEI
fund programs                      $   68,287$  72,150            (5)%         $ 200,718$    208,860              (4)%
Separately managed account fees        29,761             26,240            13%             83,726                  75,526              11%
Other fees                              5,141              4,643            11%             14,774                  13,530               9%
Total revenues                     $  103,189$ 103,033             -%          $ 299,218$    297,916               -%


Revenues increased slightly in the three and nine month periods ended
September 30, 2020 and were primarily affected by:
•Increased separately managed account program fees from positive cash flows into
new and existing SEI-sponsored programs; partially offset by
•The negative impact to investment management fees from the significant market
volatility during 2020; and
•Negative cash flows from mutual funds and a decrease in average basis points
earned on assets.




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Operating margin remained at 50% in the three month period and 48% in the nine
month period. Operating income increased slightly in the three and nine month
periods and was primarily affected by:
•An increase in revenues in the nine month period;
•Decreased costs associated with accounts formerly processed on TRUST 3000® due
to client migrations to SWP; and
•Decreased promotion and travel costs due to COVID-19 restrictions; partially
offset by
•Increased direct expenses associated with increased assets into our investment
products.

Institutional Investors
Revenues decreased slightly in the three month period and decreased $6.3
million, or 3%, in the nine month period ended September 30, 2020 and were
primarily affected by:
•Defined benefit client losses, mainly resulting from acquisitions and plan
curtailments; and
•The negative impact to investment management fees from the significant market
volatility during 2020; partially offset by
•Asset funding from new sales of our investment management platforms.
Operating margin decreased to 52% compared to 54% in the three month period and
remained at 52% in the nine month period. Operating income decreased $1.3
million, or 3%, in the three month period and decreased $3.9 million, or 3%, in
the nine month period and was primarily affected by:
•A decrease in revenues; partially offset by
•Decreased direct expenses associated with investment management fees; and
•Decreased travel costs due to COVID-19 restrictions.

Investment Managers
Revenues increased $11.7 million, or 10%, in the three month period and
increased $33.8 million, or 10%, in the nine month period ended September 30,
2020 and were primarily affected by:
•Positive cash flows into alternative, traditional and separately managed
account offerings from new and existing clients; partially offset by
•The negative impact to assets under administration from the significant market
volatility during 2020; and
•Client losses and fund closures.
Operating margin remained at 36% in the three and nine month periods. Operating
income increased $3.7 million, or 9%, in the three month period and increased
$14.3 million, or 12%, in the nine month period and was primarily affected by:
•An increase in revenues; and
•Decreased promotion and travel costs due to COVID-19 restrictions; partially
offset by
•Increased costs associated with new business, primarily personnel expenses and
third-party vendor costs; and
•Increased non-capitalized investment spending, mainly consulting costs.

Other

Corporate overhead expenses
Corporate overhead expenses primarily consist of general and administrative
expenses and other costs not directly attributable to a reportable business
segment. Corporate overhead expenses were $18.0 million and $16.2 million in the
three months ended September 30, 2020 and 2019, respectively, and $53.4 million
and $52.8 million in the nine months ended September 30, 2020, respectively. The
increase in corporate overhead expenses during the three and nine month periods
is primarily due to an increase in personnel costs and increased professional
fees related to our initiative to identify tactical and strategic improvements
to our operational resiliency plans and capabilities.




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Other income and expense
Other income and expense items on the accompanying Consolidated Statements of
Operations consists of:
                                                     Three Months Ended September                            Nine Months Ended
                                                                 30,                                           September 30,
                                                        2020              2019              2020                2019
Net gain (loss) from investments                    $     776$    611$ (1,310)$      2,121
Interest and dividend income                            1,009             4,167             5,582                12,737
Interest expense                                         (153)             (154)             (456)                 (477)
Equity in earnings of unconsolidated affiliate         28,305            37,609            86,488               112,758
Total other income and expense items, net           $  29,937          $ 

42,233 $ 90,304$ 127,139



Net gain (loss) from investments
Net gains from investments in the three months ended September 30, 2020 were
primarily due to unrealized gains recorded in current earnings related to
LSV-sponsored investment funds and Company-sponsored mutual funds from market
appreciation. Net loss from investments in the nine months ended September 30,
2020 were primarily due to unrealized losses recorded in current earnings
related to LSV-sponsored investment funds and Company-sponsored mutual funds
from the market volatility caused by the COVID-19 pandemic (See Note 5).
Interest and dividend income
Interest and dividend income is earned based upon the amount of cash that is
invested daily. The decrease in interest and dividend income in the three and
nine months ended September 30, 2020 was due to an overall decline in interest
rates.
Equity in earnings of unconsolidated affiliate
Equity in earnings of unconsolidated affiliate reflects our less than 50%
ownership in LSV. As of September 30, 2020, our total partnership interest in
LSV was 38.8%. The table below presents the revenues and net income of LSV and
our proportionate share in LSV's earnings.
                                       Three Months Ended September
                                                    30,                                                                 Nine Months Ended September 30,
                                          2020               2019                             Percent Change    2020                    2019                 Percent Change
Revenues of LSV                       $  94,902$ 121,232            (22)%         $       289,546$    365,164              (21)%
Net income of LSV                        70,440             96,699            (27)%                 220,184                 289,918              (24)%

SEI's proportionate share in earnings
of LSV                                $  28,305$  37,609            (25)%         $        86,488$    112,758              (23)%


The decline in our earnings from LSV in the three and nine months ended
September 30, 2020 was due to lower assets under management from negative cash
flows from existing clients, market volatility and client losses. Average assets
under management by LSV decreased $18.5 billion to $84.0 billion during the nine
months ended September 30, 2020 as compared to $102.5 billion during the nine
months ended September 30, 2019, a decrease of 18%.
Income Taxes
Our effective income tax rates for the three and nine months ended September 30,
2020 and 2019 differs from the federal income tax statutory rate due to the
following:
                                                                                                                          Nine Months Ended
                                                      Three Months Ended September 30,                                      September 30,
                                                         2020                   2019                  2020                    2019
Statutory rate                                               21.0  %               21.0  %               21.0  %                  21.0  %
State taxes, net of federal tax benefit                       3.3                   2.6                   3.2                      2.6
Foreign tax expense and tax rate differential                (0.2)                 (0.3)                 (0.1)                    (0.2)
Tax benefit from stock option exercises                      (0.4)                 (2.2)                 (1.0)                    (1.5)
Expiration of the statute of limitations                     (1.3)                 (1.2)                 (0.5)                    (0.4)
Provision-to-return adjustment                               (0.4)                 (0.6)                 (0.1)                    (0.2)
Other, net                                                   (0.6)                 (0.4)                 (0.5)                    (0.3)
                                                             21.4  %               18.9  %               22.0  %                  21.0  %






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The increase in our tax rate for both periods was primarily due to an increase
in our state effective tax rate. Our third quarter 2020 tax rate was also
impacted by decreased tax benefits associated with stock option exercises. We
expect our state effective tax rate for the full year 2020 to be at the
approximate level as our third quarter 2020 rate.
Stock-Based Compensation
We recognized $20.5 million and $15.6 million in stock-based compensation
expense during the nine months ended September 30, 2020 and 2019, respectively.
The amount of stock-based compensation expense we recognize is based upon our
estimate of when financial vesting targets may be achieved. Any change in our
estimate could result in the amount of stock-based compensation expense to be
accelerated, spread out over a longer period, or reversed. This may cause
volatility in the recognition of stock-based compensation expense in future
periods and could materially affect our earnings. In September 2020, we revised
our estimate of when some vesting targets are expected to be achieved which
resulted in the amount of stock-based compensation expense to be spread out over
a longer period than our initial estimate made at December 31, 2019. This change
in management's estimate did not result in a material change to our stock-based
compensation expense recognized during the three or nine month periods ended
September 30, 2020; however, we do expect the impact to be reflected during the
fourth quarter of 2020 and into 2021.
Fair Value Measurements
The fair value of our financial assets and liabilities, except for the
investment funds sponsored by LSV, is determined in accordance with the fair
value hierarchy. The fair value of the investment funds sponsored by LSV is
measured using the net asset value per share (NAV) as a practical expedient. The
fair value of all other financial assets are determined using Level 1 or Level 2
inputs and consist mainly of investments in equity or fixed-income mutual funds
that are quoted daily and Government National Mortgage Association (GNMA) and
other U.S. government agency securities that are single issuer pools that are
valued based on current market data of similar assets. The Company's Level 3
financial liabilities at September 30, 2020 and December 31, 2019 consist
entirely of the estimated contingent consideration resulting from an acquisition
(See Note 12 to the Consolidated Financial Statements). We did not have any
other financial liabilities at September 30, 2020 or December 31, 2019 that were
required to be measured at fair value on a recurring basis (See Note 4 to the
Consolidated Financial Statements).
Regulatory Matters
Like many firms operating within the financial services industry, we are
experiencing a difficult and increasingly complex regulatory environment across
our markets and the geographies in which we operate. Our current scale and reach
as a provider to the financial services industry, the introduction and
implementation of new platforms for our financial services industry clients, the
increased regulatory oversight of the financial services industry generally, new
laws and regulations affecting the financial services industry and ever-changing
regulatory interpretations of existing laws and regulations, and a greater
propensity of regulators to pursue enforcement actions and other sanctions
against regulated entities, have made this an increasingly challenging and
costly regulatory environment in which to operate.
SEI and our regulated subsidiaries have undergone or been scheduled to undergo a
range of periodic or thematic reviews, examinations or investigations by
numerous regulatory authorities around the world, including the Office of the
Comptroller of the Currency, the SEC, the Financial Industry Regulatory
Authority, Inc., the Financial Conduct Authority of the United Kingdom, the
Central Bank of Ireland and others. These regulatory activities typically result
in the identification of matters or practices to be addressed by us or our
subsidiaries and, in certain circumstances, the regulatory authorities require
remediation activities or pursue enforcement proceedings against us or our
subsidiaries. From time to time, the regulators in different jurisdictions will
elevate their level of scrutiny of our operations as our business expands or is
deemed critical to the operations of the relevant financial markets. As
described under the caption "Regulatory Considerations" in our Annual Report on
Form 10-K, the range of possible sanctions that are available to regulatory
authorities include limitations on our ability to engage in business for
specified periods of time, the revocation of registration, censures and fines.
The direct and indirect costs of responding to these regulatory activities,
implementation of any remediation actions, and of complying with new or modified
regulations or guidance, as well as the potential financial costs and potential
reputational impact against us of any enforcement proceedings or findings that
might result, is uncertain but could have a material adverse impact on our
operating results or financial position.




                                       39
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Liquidity and Capital Resources

                                                                       Nine 

Months Ended September 30,

                                                                           2020                2019
Net cash provided by operating activities                              $  396,524$ 381,535
Net cash used in investing activities                                     (64,243)           (43,045)
Net cash used in financing activities                                    

(401,833) (321,742) Effect of exchange rate changes on cash, cash equivalents and restricted cash

                                                            (4,196)            (3,878)

Net (decrease) increase in cash, cash equivalents and restricted cash (73,748)

            12,870

Cash, cash equivalents and restricted cash, beginning of period 844,547

            758,039
Cash, cash equivalents and restricted cash, end of period              $  

770,799 $ 770,909



Cash requirements and liquidity needs are primarily funded through our cash flow
from operations and our capacity for additional borrowing. At September 30,
2020, our unused sources of liquidity consisted of cash and cash equivalents and
the amount available under our credit facility.
Our credit facility provides for borrowings of up to $300.0 million and is
scheduled to expire in June 2021 (See Note 6 to the Consolidated Financial
Statements). As of October 21, 2020, we had outstanding letters of credit of
$11.6 million which reduced our amount available under the credit facility to
$288.4 million. These letters of credit were primarily issued for the expansion
of our corporate headquarters and are due to expire in late 2020.
The availability of the credit facility is subject to compliance with certain
covenants set forth in the agreement. The credit facility contains covenants
which restrict our ability to engage in mergers, consolidations, asset sales,
investments, transactions with affiliates other than wholly-owned subsidiaries,
or to incur liens or other indebtedness including contingent obligations or
guarantees, as defined in the agreement. In the event of a default under the
credit facility, we would also be restricted from paying dividends on, or
repurchasing, our common stock. Currently, our ability to borrow from the credit
facility is not limited by any covenant of the agreement. Our credit facility is
provided through Wells Fargo Bank, National Association, and a syndicate of
other well-established financial institutions. As of October 21, 2020, we are
not aware of any issues related to the ability of the lenders to honor the
borrowing terms in our credit facility agreement.
Our credit facility contains terms that utilize the London InterBank Offered
Rate (LIBOR) as a potential component of the interest rate to be applied to the
borrowings we may undertake under the agreement (See Note 6 to the Consolidated
Financial Statements). We are currently monitoring the actions of LIBOR's
regulator and the implementation of alternative reference rates in advance of
the expected discontinuation of LIBOR after 2021 to determine any potential
impact to our current credit facility and negotiations for subsequent borrowing
agreements.
The majority of our excess cash reserves are primarily placed in accounts
located in the United States that invest entirely in SEI-sponsored money market
mutual funds denominated in the U.S. dollar. We also utilize demand deposit
accounts or money market accounts at several well-established financial
institutions located in the United States. Accounts used to manage these excess
cash reserves do not impose any restrictions or limitations that would prevent
us from being able to access such cash amounts immediately. As of October 21,
2020, the amount of cash and cash equivalents considered free and immediately
accessible for other general corporate purposes was $392.1 million.
Our cash and cash equivalents include accounts managed by our subsidiaries that
are used in their operations or to cover specific business and regulatory
requirements. The availability of this cash for other purposes beyond the
operations of these subsidiaries may be limited. We therefore do not include
accounts of our foreign subsidiaries in our calculation of free and immediately
accessible cash for other general corporate purposes. A portion of the
undistributed earnings of our foreign subsidiaries are deemed repatriated. Any
subsequent transfer of available cash related to the repatriated earnings of our
foreign subsidiaries could significantly increase our free and immediately
accessible cash.
Cash flows from operations increased $15.0 million in the first nine months of
2020 compared to the first nine months of 2019 primarily from the positive
impact from the change in our working capital accounts due to the timing of
expense payments and higher distribution payments received from our
unconsolidated affiliate, LSV. The increase was partially offset by the decline
in our net income.




                                       40
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Net cash used in investing activities includes:
•Purchases, sales and maturities of marketable securities. Our purchases, sales
and maturities of marketable securities in the first nine months of 2020 and
2019 were as follows:
                                                      Nine Months Ended September 30,
                                                           2020                   2019
Purchases                                        $       (114,407)$ (126,030)
Sales and maturities                                      113,417                137,783
Net investing activities from marketable
securities                                       $           (990)          

$ 11,753



•The capitalization of costs incurred in developing computer software. We
capitalized $18.6 million of software development costs in the first nine months
of 2020 as compared to $26.8 million in the first nine months of 2019. The
majority of our software development costs are related to significant
enhancements for the expanded functionality of the SEI Wealth Platform.
•Capital expenditures. Our capital expenditures in the first nine months of 2020
were $43.1 million as compared to $30.5 million in the first nine months of
2019. Our expenditures in 2020 and 2019 primarily include purchased software,
equipment for our data center operations and the expansion of our corporate
headquarters which is scheduled to be completed in the fourth quarter 2020.
Total expenditures related to the expansion during the fourth quarter are
expected to be approximately $5.0 million. We are currently evaluating
improvements to our information technology infrastructure which, if implemented,
will result in additional capital outlays for purchased software and equipment
for our data center operations.
Net cash used in financing activities includes:
•The repurchase of our common stock. Our Board of Directors has authorized the
repurchase of our common stock through multiple authorizations. Currently, there
is no expiration date for our common stock repurchase program. We had total
capital outlays of $327.1 million during the first nine months of 2020 and
$262.9 million during the first nine months of 2019 for the repurchase of our
common stock.
•Proceeds from the issuance of our common stock. We received $29.8 million in
proceeds from the issuance of our common stock during the first nine months of
2020 as compared to $41.9 million during the first nine months of 2019. The
decline in proceeds is primarily attributable to a lower level of stock option
exercise activity.
•Dividend payments. Cash dividends paid were $103.9 million in the first nine
months of 2020 as compared to $100.7 million in the first nine months of 2019.
We believe our operating cash flow, available borrowing capacity, and existing
cash and cash equivalents should provide adequate funds for ongoing operations;
continued investment in new products and equipment; our common stock repurchase
program and future dividend payments.
Forward-Looking Information and Risk Factors
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this discussion
is or may be considered forward-looking. Forward-looking statements relate to
future operations, strategies, financial results or other developments.
Forward-looking statements are based upon estimates and assumptions that involve
certain risks and uncertainties, many of which are beyond our control or are
subject to change. Although we believe our assumptions are reasonable, they
could be inaccurate. Our actual future revenues and income could differ
materially from our expected results. We have no obligation to publicly update
or revise any forward-looking statements.
Among the risks and uncertainties which may affect our future operations,
strategies, financial results or other developments are those risks described in
our latest Annual Report on Form 10-K in Part I, Item 1A. These risks include
the following:
•changes in capital markets that may affect our revenues and earnings;
•product development risk;
•risk of failure by a third-party service provider;
•data and cyber security risks;
•operational risks associated with the processing of investment transactions;
•systems and technology risks;
•pricing pressure from increased competition, disruptive technology and poor
investment performance;




                                       41
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•the affect on our earnings and cashflows from the performance of LSV Asset
Management;
•third party pricing services for the valuation of securities invested in our
investment products;
•external factors affecting the fiduciary management market;
•the affect of extensive governmental regulation;
•litigation and regulatory examinations and investigations;
•our ability to capture the expected value from acquisitions, divestitures,
joint ventures, minority stakes or strategic alliances;
•increased costs and regulatory risks from the growth of our business;
•fiduciary or other legal liability for client losses from our investment
management operations;
•consolidation within our target markets;
•our ability to receive dividends or other payments in needed amounts from our
subsidiaries;
•the exit by the United Kingdom from the European Union;
•third party approval of our investment products with advisors affiliated with
independent broker-dealers or other networks;
•the effectiveness of our business, risk management and business continuity
strategies, models and processes;
•financial and non-financial covenants which may restrict our ability to manage
liquidity needs;
•changes in, or interpretation of, accounting principles or tax rules and
regulations;
•fluctuations in foreign currency exchange rates;
•fluctuations in interest rates affecting the value of our fixed-income
investment securities;
•our ability to hire and retain qualified employees;
•the competence and integrity of our employees and third-parties;
•stockholder activism efforts;
•retention of executive officers and senior management personnel; and
•unforeseen or catastrophic events, including the emergence of pandemic,
terrorist attacks, extreme weather events or other natural disasters.
We conduct our operations through many regulated wholly-owned subsidiaries.
These subsidiaries are:
•SEI Investments Distribution Co., or SIDCO, a broker-dealer registered with the
SEC under the Securities Exchange Act of 1934 and a member of the Financial
Industry Regulatory Authority, Inc., or FINRA;
•SEI Investments Management Corporation, or SIMC, an investment advisor
registered with the SEC under the Investment Advisers Act of 1940 and with the
Commodity Futures Trading Commission, or CFTC, under the Commodity Exchange Act;
•SEI Private Trust Company, or SPTC, a limited purpose federal thrift chartered
and regulated by the Office of the Comptroller of the Currency;
•SEI Trust Company, or STC, a Pennsylvania trust company, regulated by the
Pennsylvania Department of Banking and Securities;
•SEI Investments (Europe) Limited, or SIEL, an investment manager and financial
institution subject to regulation by the Financial Conduct Authority of the
United Kingdom;
•SEI Investments Canada Company, or SEI Canada, an investment fund manager that
has various other capacities that is regulated by the Ontario Securities
Commission and various provincial authorities;
•SEI Investments Global, Limited, or SIGL, a management company for Undertakings
for Collective Investment in Transferable Securities, or UCITS, and for
Alternative Investment Funds, or AIFs, that is regulated primarily by the
Central Bank of Ireland, or CBI;
•SEI Investments - Global Fund Services, Ltd., or GFSL, an authorized provider
of administration services for Irish and non-Irish collective investment schemes
that is regulated by the CBI; and
•SEI Investments - Depositary and Custodial Services (Ireland) Limited, or D&C,
an authorized provider of depositary and custodial services that is regulated by
the CBI.
In addition to the regulatory authorities listed above, our subsidiaries are
subject to the jurisdiction of regulatory authorities in other foreign
countries. In addition to our wholly-owned subsidiaries, we also own a minority
interest of approximately 38.8 percent in LSV, which is also an investment
advisor registered with the SEC.




                                       42
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The Company, its regulated subsidiaries, their regulated services and solutions
and their customers are all subject to extensive legislation, regulation and
supervision that recently has been subject to, and continues to experience,
significant change and increased regulatory activity. These changes and
regulatory activities could have a material adverse effect on us and our
clients.
The various governmental agencies and self-regulatory authorities that regulate
or supervise the Company and its subsidiaries have broad administrative powers.
In the event of a failure to comply with laws, regulations and requirements of
these agencies and authorities, the possible business process changes required
or sanctions that may be imposed include the suspension of individual employees,
limitations on our ability to engage in business for specified periods of time,
the revocation of applicable registration as a broker-dealer, investment advisor
or other regulated entity, and, as the case may be, censures and fines.
Additionally, certain securities and banking laws applicable to us and our
subsidiaries provide for certain private rights of action that could give rise
to civil litigation. Any litigation could have significant financial and
non-financial consequences including monetary judgments and the requirement to
take action or limit activities that could ultimately affect our business.
Governmental scrutiny from regulators, legislative bodies and law enforcement
agencies with respect to matters relating to our regulated subsidiaries and
their activities, services and solutions, our business practices, our past
actions and other matters has increased dramatically in the past several years.
Responding to these examinations, investigations, actions and lawsuits,
regardless of the ultimate outcome of the proceeding, is time consuming and
expensive and can divert the time and effort of our senior management from our
business. Penalties, fines and changes to business processes sought by
regulatory authorities have increased substantially over the last several years,
and certain regulators have been more likely in recent years to commence
enforcement actions or to advance or support legislation targeted at the
financial services industry. We continue to be subject to inquiries from
examinations and investigations by supervisory and enforcement divisions of
regulatory authorities and expect this to continue in the future. We believe
this is also the case with many of our regulated clients. Governmental scrutiny
and legal and enforcement proceedings can also have a negative impact on our
reputation, our relationship with clients and prospective clients, and on the
morale and performance of our employees, which could adversely affect our
businesses and results of operations.
We are subject to the USA PATRIOT Act of 2001, which contains anti-money
laundering and financial transparency laws and requires implementation of
regulations applicable to financial services companies, including standards for
verifying client identification and monitoring client transactions and detecting
and reporting suspicious activities. Anti-money laundering laws outside the
United States contain similar requirements. We offer investment and banking
solutions that also are subject to regulation by the federal and state
securities and banking authorities, as well as foreign regulatory authorities,
where applicable. Existing or future regulations that affect these solutions
could lead to a reduction in sales of these solutions or require modifications
of these solutions.
Compliance with existing and future regulations and responding to and complying
with recent increased regulatory activity affecting broker-dealers, investment
advisors, investment companies, financial institutions and their service
providers could have a significant impact on us. We periodically undergo
regulatory examinations and respond to regulatory inquiries and document
requests. In addition, recent and continuing legislative activity in the United
States and in other jurisdictions (including the European Union and the United
Kingdom) have made and continue to make extensive changes to the laws regulating
financial services firms. As a result of these examinations, inquiries and
requests, as a result of increased civil litigation activity, and as a result of
these new laws and regulations, we engage legal counsel and other subject matter
experts, review our compliance procedures, solution and service offerings, and
business operations, and make changes as we deem necessary or as may be required
by the applicable authority. These additional activities and required changes
may result in increased expense or may reduce revenues.
Our bank clients are subject to supervision by federal, state and foreign
banking and financial services authorities concerning the manner in which such
clients purchase and receive our products and services. Our plan sponsor clients
and our subsidiaries providing services to those clients are subject to
supervision by the Department of Labor and compliance with employee benefit
regulations. Investment advisor and broker-dealer clients are regulated by the
SEC, state securities authorities, or FINRA. Existing or future regulations
applicable to our clients may affect our clients' purchase of our products and
services.
In addition, see the discussion of governmental regulations in Item 1A "Risk
Factors" in our latest Annual Report on Form 10-K for a description of the risks
that proposed regulatory changes may present for our business.





                                       43

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