SEI Investments Earnings: A Mixed Quarter as Institutional Investors Weak, Investment Managers Robust

Narrow-moat SEI Investments SEIC reported a mixed third quarter. Revenue of $477 million fell shy of the FactSet consensus of $483 million while EPS of $0.87 was in line. Similar to what we’ve seen in the last several quarters, the firm’s fund administration unit, referred to as investment managers, continues to outshine the firm’s other segments, which face various headwinds. As we update our model, we are reducing our fair value estimate to $66 from $69 to account for some market headwinds because our last update and weakness in the firm’s institutional investors segment.

In the institutional investors segment, revenue of $70 million was down from $75 million in the second quarter and $83 million in the year-ago quarter. Pricing continues to be competitive and rising rates make defined benefit curtailments more attractive. We expect these headwinds to continue for the foreseeable future. Private banks net new recurring sales were $2 million, an indication that sales momentum is proving to be elusive. On the positive side, margins did improve somewhat due to recent cost actions. SEI is continuing to migrate customers from its legacy Trust 3000 platform to its SEI Wealth Platform, or SWP, but the retirement of Trust 3000, which would generate substantial savings for SEI, lacks a timeline. Investment advisors did see positive flows, but pricing and mix pressures meant that revenue growth is coming in lower than asset growth there. We continue to expect industry leader Envestnet to grow meaningfully faster than SEI.

The investment managers segment continues to be a bright spot, with revenue up 2% sequentially and 9% from the year-ago period. Net new recurring sales, which can be lumpy, were $17 million in the quarter, down from $21 million in the second quarter, but still solid in our view.