Attached files

file filename
EX-32 - SECTION 906 CEO AND CFO CERTIFICATION - SEI INVESTMENTS COseic-123114xex32.htm
EX-21 - SUBSIDIARIES OF THE REGISTRANT - SEI INVESTMENTS COseic-123114xex21.htm
EX-23.3 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - SEI INVESTMENTS COseic-123114xex233.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - SEI INVESTMENTS COseic-123114xex311.htm
EXCEL - IDEA: XBRL DOCUMENT - SEI INVESTMENTS COFinancial_Report.xls
EX-23.2 - CONSENT OF KPMG LLP RELATED TO LSV ASSET MANAGEMENT - SEI INVESTMENTS COseic-123114xex232.htm
EX-23.4 - CONSENT OF PRICEWATERHOUSECOOPERS LLP RELATED TO LSV ASSET MANAGEMENT - SEI INVESTMENTS COseic-123114xex234.htm
EX-99.5 - FINANCIAL STATEMENTS OF LSV ASSET MANAGEMENT - SEI INVESTMENTS COseic-123114xex995.htm
EX-23.1 - CONSENT OF KPMG LLP - SEI INVESTMENTS COseic-123114xex231.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - SEI INVESTMENTS COseic-123114xex312.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________to ________

Commission File Number: 0-10200
SEI INVESTMENTS COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
Pennsylvania
 
23-1707341
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
1 Freedom Valley Drive, Oaks, Pennsylvania
 
19456-1100
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code 610-676-1000
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
The NASDAQ Stock Market LLC
(The NASDAQ Global Select Market®)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $4.3 billion based on the closing price of $32.77 as reported by NASDAQ on June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter). For purposes of making this calculation only, the registrant has defined affiliates as including all executive officers, directors and beneficial owners of more than ten percent of the common stock of the registrant.
The number of shares outstanding of the registrant's common stock, as of the close of business on January 30, 2015:
 
 
 
Common Stock, $.01 par value
 
166,832,044

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference herein:

1.
The definitive proxy statement relating to the registrant’s 2015 Annual Meeting of Shareholders, to be filed within 120 days after the end of the fiscal year covered by this annual report, is incorporated by reference in Part III hereof.







SEI Investments Company
Fiscal Year Ended December 31, 2014
TABLE OF CONTENTS

 
 
Page
PART I
Item 1.
Business.
Item 1A.
Risk Factors.
Item 1B.
Unresolved Staff Comments.
Item 2.
Properties.
Item 3.
Legal Proceedings.
Item 4.
Mine Safety Disclosures.
 
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6.
Selected Financial Data.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A.
Controls and Procedures.
Item 9B.
Other Information.
 
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Item 11.
Executive Compensation.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Principal Accounting Fees and Services.
 
PART IV
Item 15.
Exhibits, Financial Statement Schedules.


Page 1 of 77



PART I
Forward Looking Statements
This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve certain known and unknown risks, uncertainties and other factors, many of which are beyond our control, and are not limited to those discussed in Item 1A, “Risk Factors.” All statements that do not relate to historical or current facts are forward-looking statements. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to present or anticipated products and markets, future revenues, capital expenditures, expansion plans, future financing and liquidity, personnel, and other statements regarding matters that are not historical facts or statements of current condition.
Any or all forward-looking statements contained within this Annual Report on Form 10-K may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, we cannot guarantee any forward-looking statements. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the U.S. Securities and Exchange Commission (SEC).
Item 1. Business.
Overview
SEI (NASDAQ: SEIC) is a leading global provider of investment processing, investment management and investment operations solutions. We help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth by providing comprehensive, innovative, investment and investment-business solutions. As of December 31, 2014, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $625.4 billion in mutual fund and pooled or separately managed assets, including $252.8 billion in assets under management and $372.6 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $82.7 billion of assets which are included as assets under management.
Our investment management business solutions include:
Investment processing outsourcing solutions for providers of institutional and private-client wealth management services, including banks, trust companies, independent wealth advisers and other financial services firms;
Investment management solutions for institutional investors, including retirement plan sponsors, not-for-profit organizations and affluent individual investors; and
Investment operations outsourcing solutions for investment management firms, banks and investment companies that sponsor and distribute mutual funds, hedge funds and alternative investments.
General Development of the Business
For over 45 years, SEI has been a leading provider of wealth management business solutions for the financial services industry.
We began doing business in 1968 by providing computer-based training simulations for bank loan officers. We developed an investment accounting system for bank trust departments in 1972 and became a leading provider of investment-processing outsourcing services to banks and trust institutions in the United States. Later, we broadened these outsourcing services and began offering bank clients a family of mutual funds, as well as investment-operations outsourcing services. We became a public company in 1981.
We began to adapt these solutions, and develop new investment management solutions, for selected global markets in the 1990s, including: investment advisors, retirement plan sponsors and institutional investors, asset management distribution firms, investment managers and affluent individual investors. Today, we serve approximately 7,300 clients in the United States, Canada, the United Kingdom, continental Europe, South Africa and East Asia.
In each of these markets, we have combined our core competencies - investment processing, investment management and investment operations - to deliver broader and more strategic solutions for clients and markets. Today, we offer a global wealth platform and investment services for private banks and wealth services firms; a complete life and wealth platform for operating an investment advisory business; a comprehensive fiduciary management solution for retirement plan sponsors and institutional investors; a total operational outsourcing solution for investment managers and a complete life and wealth solution for ultra-high-net-worth families.

Page 2 of 77



Strategy
We seek to achieve growth in earnings and shareholder value by strengthening our position as a provider of global investment management solutions. To achieve this objective, we have implemented these strategies:
Create broader solutions for wealth service firms. Banks, investment managers and financial advisors seek to enter new markets, expand their service offerings, provide a differentiated experience to their clients, improve efficiencies, reduce risks and better manage their businesses. We offer business solutions integrating technology, operating processes and financial products designed to help these institutions better serve their clients and provide opportunities to improve their business success.
Help institutional investors manage retirement plans and operating capital. Retirement plan sponsors, not-for-profit organizations and other institutional investors strive to meet their fiduciary obligations and financial objectives while reducing business risk. We deliver customized investment management solutions, as part of a complete solution offering, that enable investors to make better decisions about their investments and to manage their assets more effectively.
Help affluent individual investors manage their life and wealth goals. These investors demand a holistic wealth management experience that focuses on their life goals and provides them with an integrated array of financial services that includes substantially more than traditional wealth management offerings. We help these investors identify their goals and offer comprehensive life and wealth advisory services including life planning, investments and other financial services.
Expand globally. Global markets are large and present significant opportunities for growth. We have evolved U.S. business models for the global wealth management marketplace, focusing on the needs of institutional investors, private banks, independent wealth advisers, investment managers, investment advisors and affluent individual investors.
Fundamental Principles
We are guided by these fundamental principles in managing the business and adopting these growth strategies:
Achieve growth in revenue and earnings. We seek to grow the business by providing additional services to clients, adding new clients, introducing new products and adapting products for new markets.
Forge long-term client relationships. We strive to achieve high levels of customer satisfaction and to forge close and long lasting client relationships. We believe these relationships enable us to market additional services and acquire knowledge and insights that fuel the product development process.
Invest in product development. We continually enhance products and services to keep pace with industry developments, regulatory requirements and the emerging needs of markets and clients. We believe ongoing investments in research and development give us a sustainable, competitive advantage in our markets.
Maintain financial strength. We adopt business models that generate recurring revenues and positive cash flows. Predictable cash flows serve as a source of funds for continuing operations, investments in new products, common stock repurchases and dividend payments.
Leverage investments across the business. We create scalable, enterprise-wide solutions designed to serve the needs of multiple markets, potentially offering operating efficiencies that can benefit corporate profitability.
Create value for shareholders. The objective of achieving long-term sustainable growth in revenues and earnings strongly influences the management of the business. This philosophy guides corporate management practices, strategic planning activities and employee compensation practices.
Business Solutions
Investment Processing
Investment processing solutions consist of application and business process outsourcing services, professional services and transaction-based services. Clients include providers of institutional and private client wealth management services, including banks, trust companies, independent wealth advisers and other financial services firms. We also deliver these solutions, combined with our investment management programs, to investment advisors and other financial services firms that provide wealth management services to their advisory clients.
Our investment processing solutions are delivered through two platforms: TRUST 3000® and the SEI Wealth PlatformSM (the SEI Wealth Platform or the Platform). We own, maintain and operate the software applications and information processing facilities for all of our investment processing solutions. Clients access our solutions remotely while fully supported by our data center.

Page 3 of 77



TRUST 3000 is a comprehensive trust and investment accounting system that provides securities processing and investment accounting for all types of domestic and global securities, and support for multiple account types, including personal trust, corporate trust, institutional trust and non-trust investment accounts.
The SEI Wealth Platform is a next-generation solution that provides a global, unified and scalable platform for operating a wealth management business. This comprehensive solution includes investment processing and infrastructure services, and advanced capabilities to support wealth advisory, asset management, and wealth administration functions. The Platform provides global wealth management capabilities including a 24/7 operating model, global securities processing, and multi-currency accounting and reporting. Built around a client-centric relationship model, the Platform has an open architecture and supports workflow management and straight-through processing. We began delivering the SEI Wealth Platform to private banks and independent wealth advisers in the United Kingdom in 2007. Since then, we have signed 20 independent wealth advisors and other wealth managers in the United Kingdom and signed 10 banks in the United States. We have also converted select groups of existing investment advisor clients in the United States.
Investment processing revenues are earned as monthly fees for contracted services including software licenses. Information processing and investment operations revenues are earned based upon the type and number of investor accounts serviced or as a percentage of the market value of the clients’ assets processed. These revenues are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Professional services revenues are earned from contracted, project-oriented services, including client implementations, and are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations.
Transaction-based revenues are earned from trade execution services and are recognized as Transaction-based and trade execution fees on the accompanying Consolidated Statements of Operations.
Investment Management Programs
Investment management programs consist of money market, fixed-income and equity mutual funds, collective investment products, alternative investment portfolios and separately managed accounts. We serve as the sponsor, administrator and investment advisor for many of these products. We distribute these programs through investment advisory firms, including investment advisors and banks, and directly to institutional and individual investors.
We have expanded these investment management programs to include other consultative, operational and technology components, and have created comprehensive solutions tailored to the needs of a specific market. These components may include investment strategies, consulting services, administrative and processing services and technology tools.
Investors in our investment programs typically follow an investment strategy constructed according to our disciplined investment process and invest in a globally diversified portfolio that consists of multiple asset classes and investment styles. Our investment process is based on five principles: asset allocation and appropriate diversification, both of which are important to investment performance; a portfolio design process that identifies the drivers of investment returns for each asset class; manager selection, where we act as a manager-of-managers, selecting style-specific managers from a global network of money managers; a portfolio construction process implemented through selected managers, and diversified among asset classes and drivers of investment returns; and risk management processes that monitor portfolios to ensure risk objectives are met.
As of December 31, 2014, SEI managed $170.1 billion in assets including: $136.1 billion invested in fixed-income and equity funds and separately managed account programs; $13.0 billion invested in liquidity or money market funds; and $21.0 billion invested in collective trust fund programs. An additional $82.7 billion in assets is managed by our unconsolidated affiliate LSV, a registered investment advisor that specializes in a value equity management style for their clients.
Revenues from investment management programs are primarily earned as a percentage of net assets under management. These revenues are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations. Our interest in the earnings of LSV is recognized in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statements of Operations.
Investment Operations
Investment operations outsourcing solutions consist of accounting and administration services, and distribution support services. We deliver these solutions to investment management firms that offer traditional and alternative products. We support traditional managers who advise a variety of investment products including mutual funds, UCITS schemes, collective investment trusts (CITs), exchange-traded funds (ETFs), institutional accounts and separately managed accounts. We also

Page 4 of 77



provide comprehensive solutions to investment managers worldwide that sponsor and distribute alternative investments such as hedge funds, funds of hedge funds, private equity funds and real estate funds, across both registered and partnership structures.
Accounting and administration services include account and fund administration, investment portfolio and fund accounting; cash administration and treasury services; trade capture, settlement and reconciliation; trustee and custodial services; legal, audit and tax support; and investor services. Distribution support services may include access to distribution platforms and market and industry analyses to identify specific product distribution opportunities. These solutions are delivered by utilizing a highly integrated, robust and scalable technology platform adapted to fit the specific business needs of our investment manager clients.
As of December 31, 2014, we administered $372.6 billion in client assets for traditional and alternative investment fund products, including mutual funds, hedge funds and private equity funds. Revenues from these products are primarily earned as a percentage of net assets under administration.
Revenues for the processing of institutional separate accounts and separately managed accounts are generally earned on the number of investor accounts serviced. Assets associated with this separate account processing are not included in reported assets under administration. Both revenue categories are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Business Segments
Business segments are generally organized around our target markets. Financial information about each business segment is contained in Note 13 to the Consolidated Financial Statements. Our business segments are:
Private Banks – provides investment processing and investment management programs to banks and trust institutions, independent wealth advisers and financial advisors worldwide;
Investment Advisors – provides investment management programs to affluent investors through a network of independent registered investment advisors, financial planners and other investment professionals in the United States;
Institutional Investors – provides investment management programs and administrative outsourcing solutions to retirement plan sponsors, hospitals and not-for-profit organizations worldwide;
Investment Managers – provides investment operations outsourcing solutions to fund companies, banking institutions and both traditional and non-traditional investment managers worldwide; and
Investments in New Businesses – focuses on providing investment management programs to ultra-high-net-worth families residing in the United States; developing internet-based investment services and advice solutions; entering new markets; and conducting other research and development activities.
The percentage of consolidated revenues generated by each business segment for the last three years was:
 
 
2014
 
2013
 
2012
Private Banks
 
35
%
 
35
%
 
37
%
Investment Advisors
 
22
%
 
21
%
 
20
%
Institutional Investors
 
22
%
 
23
%
 
23
%
Investment Managers
 
20
%
 
20
%
 
19
%
Investments in New Businesses
 
1
%
 
1
%
 
1
%
 
 
100
%
 
100
%
 
100
%
Private Banks    
The Private Banks segment delivers a comprehensive outsourcing solution integrating investment processing services, investment management and distribution programs, and business expertise to banks and trust institutions, independent wealth advisers and financial advisors worldwide.
We offer TRUST 3000 investment processing as an application solution or as a business processing solution. Application solution clients outsource investment processing technology software services and information processing to SEI, but retain responsibility for back-office investment operations. Business processing solution clients outsource investment operations in addition to application services. Investment operations includes custody and safekeeping of certain assets, income collection, securities settlement and other related trust activities.
Contracts with TRUST 3000 clients have initial terms that are generally three to seven years in length. At December 31, 2014, we had significant relationships with 101 bank and trust institutions in the United States. Our principal competitors for this business are: Fidelity National Information Services, Inc. (FIS), SunGard Data Systems Inc., State Street Corporation, Fi-Tek

Page 5 of 77



LLC, Charles Schwab & Co., Inc. and Fidelity Investments. Many large financial institutions develop, operate and maintain proprietary investment and trust accounting systems. We consider these “in-house” solutions to be a form of competition.
Our marketing efforts in this segment are focused on the SEI Wealth Platform, as we now have an installed base of operating clients in both the United Kingdom and the United States. We believe the Platform addresses the needs of large global wealth managers that seek to engage their clients and investors in an increasingly digital world, address the growing complexity of their operations and legacy platforms, comply with complex regulations, and make more effective use of capital by outsourcing wealth management services.
We currently offer the SEI Wealth Platform as a business processing solution. New Platform clients undergo a business transformation process that includes either a conversion of existing client assets, or a business transition process which funds new client assets onto the Platform as the client grows their business with a contractual minimum fee in place. We begin to earn processing revenues when the client completes the transformation process and commences operation.
In 2015, we expect to continue our focus on capturing a large U.S. bank as an early adopter of the SEI Wealth Platform while growing current clients on the Platform and implementing signed clients. We will also continue to manage our current TRUST 3000 relationships toward eventual conversion to the Platform.
Contracts with SEI Wealth Platform clients have initial terms that are generally five to seven years in length. At December 31, 2014, we had significant relationships with 30 banks, independent wealth advisers and other wealth managers located in the United Kingdom and the United States. Our principal competitors for this business, in addition to those named above, are: Pershing LLC, FNZ UK Ltd., Temenos Group AG, Avaloq, SS&C Technologies, Fiserv, Inc. and smaller technology firms. We also consider “in-house” solutions to be a form of competition.
This segment also offers investment management and distribution programs for banks, wealth managers and other financial services intermediaries. These programs start with SEI’s standard investment solutions, strategies, funds, and investment services. We can also deliver customized solutions including asset management strategies, as well as investment manager and portfolio research services. Increasingly, asset management distributors with established platforms are seeking to grow their businesses by offering broader investment solutions while outsourcing non-client facing investment services activities. We believe we offer our distribution partners a cost-effective way to grow their businesses and offer their investors differentiated investment choices, such as SEI’s goal-based investing solution. In 2015, we expect to drive continued momentum in this solution.
At December 31, 2014, we had approximately 330 asset management distribution clients. We also had single-product relationships with approximately 80 additional banks and trust institutions. The principal competitors for this business are: Federated Investors, Inc., Russell Investment Group, Fidelity Investments, Franklin Templeton Investments, discretionary portfolio managers and various multi-manager investment programs offered by other firms. We also consider “in-house” internal asset management capabilities to be a form of competition.
Investment Advisors
The Investment Advisors segment offers investment management solutions throughout the United States to registered investment advisors, financial planners and life insurance agents, many of whom are registered with independent broker-dealers. These investment management solutions include our investment management programs and back-office investment processing outsourcing services and are usually offered on a bundled basis. We also help advisors manage and grow their businesses by giving them access to our marketing support programs, business assessment assistance and recommended management practices. We believe our solutions help investment advisors reduce risk, improve quality and gain operational efficiency to devote more of their resources to servicing their clients and acquiring new clients.
Advisors are responsible for the investor relationship which includes creating financial plans, implementing investment strategies and educating and servicing their customers. Advisors may customize portfolios to include separate account managers provided through our programs as well as SEI-sponsored mutual funds. Our wealth and investment programs are designed to be attractive to affluent or high-net-worth individual investors with over $250 thousand of investable assets and small to medium-sized institutional plans.
We continually enhance our offering to meet the emerging needs of our advisors and their end clients. We anticipate the enhanced service offerings enabled through the SEI Wealth Platform will provide a more diverse range of back-office, front-office and client-facing investment processing outsourcing services and investment management solutions. In 2015, we expect to convert additional advisors onto the Platform, continue our focus on recruiting new advisors and improving net cash flows.
We estimate we have business relationships with over 6,100 financial advisors at December 31, 2014. Our definition of a client for this segment includes financial advisors who have exceeded a minimal level of customer assets invested in our investment

Page 6 of 77



products. With the growth of our business, the minimal level of customer assets which defines a "business relationship" is adjusted from time to time. Our business is primarily based on approximately 1,550 investment advisors who, at December 31, 2014, had at least $5.0 million each in customer assets invested in our mutual funds and separately managed accounts. Revenues are earned largely as a percentage of average assets under management.
The principal competition for our investment management products is from other money managers, other turnkey asset management providers, mutual fund companies, custody service providers and the proprietary investment management programs of broker dealers. In the advisor distributor channel, the principal competitors include AssetMark Investment Services Inc., Brinker Capital, EnvestNet Asset Management, Inc., Fidelity Investments, Lockwood Advisors, Inc., a subsidiary of The Bank of New York Mellon, Charles Schwab & Co., Inc., and other broker-dealers. As we introduce the Platform, we expect to more directly compete with custody service providers.
Institutional Investors
The Institutional Investors segment offers fiduciary management solutions for retirement plan sponsors, healthcare systems and not-for-profit organizations globally. Clients can outsource their investment management needs through an open architecture platform supported with administrative services for defined benefit plans, defined contribution plans, endowments, foundations and balance sheet assets.
The fiduciary management program provides an investment strategy customized to the client’s financial status and goals, while integrating a multimanager investment process, plan administration services and advisory services. Plan administration services include trustee, custodial, and benefit payment services. Advisory services include asset liability modeling and customization of an asset allocation plan that is designed to meet long-term objectives.
By outsourcing retirement plan services, we believe clients benefit from an investment approach built around a strategy designed to meet the client's long-term business and plan objectives and a process that alleviates the responsibility of manager selection, ongoing monitoring and termination. This approach is designed to reduce business risk, provide ongoing due diligence and increase operational efficiency. Nonprofit organizations can manage volatility through more diversified portfolios and focus more resources on achieving their overall mission. Healthcare organizations benefit from customized asset allocations that help provide improved balance sheet protection and overall financial risk management.
In 2015, we expect to continue to build a globally-diversified institutional client base, provide our clients with value-added advice and discretionary services, and place increased emphasis on defined contribution sales opportunities.
Fees are primarily earned as a percentage of average assets under management. At December 31, 2014, we had relationships with approximately 480 investment management clients. The principal competitors for this segment are Mercer, Aon Hewitt, Towers Watson, Russell Investments, Northern Trust Company and other investment consultants.
Investment Managers
The Investment Managers segment supplies investment organizations of all types with the advanced operating infrastructure they need to be competitive while navigating a host of business and regulatory challenges. Our comprehensive global operations platform provides asset managers with customized and integrated capabilities in the areas of fund administration, fund accounting, data and information management, risk management and compliance support.
We work with a diverse and sophisticated group of traditional, alternative and sovereign wealth managers, including close to one-third of the top 100 managers worldwide. Clients choose our full-service offering because of its flexibility, speed and ability to support their diverse business needs across multiple product types and structures, investment strategies and asset classes. Our investment manager clients offer a variety of packaging types, including hedge funds, private equity funds, mutual funds, separate accounts, ETFs, UCITS, unit trusts and closed end funds. For clients who desire to manage assets within a collective investment trust, we offer trustee and investment management services in addition to the administration services described above. Because our operational platform enables managers to view their business in such a comprehensive and integrated way, it gives them more control over their business risks and results.
Over the past few years, investors have faced multiple market crises and rising volatility. Investment managers have responded with a range of innovative products designed to better manage volatility and downside risk, and offer alternatives to the pure long-only investing strategy historically used in traditional markets. The clear line that had once separated traditional and alternative investment products continues to blur as traditional managers utilize tools historically used by alternative managers, while alternative managers increasingly are launching registered products and taking advantage of broader, and different, distribution channels. Additionally, as competitiveness will increasingly be based on capabilities other than just investment expertise, we have offered managers solutions that help them gain scale and efficiency, run their businesses more intelligently,

Page 7 of 77



and be more responsive to investor needs. We also continually enhance our solutions to anticipate and adapt to economic, regulatory and industry changes.
In 2015, we expect to continue our efforts to add new asset managers, grow our existing relationships, expand into new markets and further develop our solutions and global operations platform.
Contracts for our fund administration outsourcing services generally have terms ranging from three to five years. Fees are primarily earned as a percentage of average assets under management and administration. A portion of the revenues for this segment are earned as account servicing fees. At December 31, 2014, we had relationships with approximately 248 investment management companies and alternative investment managers. Our competitors vary according to the asset class or solution provided and include large global custodian banks such as State Street, BNY Mellon and Northern Trust as well as independently owned firms such as SS&C Technologies and Citco.
Investments in New Businesses
The Investments in New Businesses segment represents other business ventures or research and development activities intended to expand our solutions to new or existing markets including ultra-high-net-worth families who reside in the United States. This segment also includes the costs associated with the business development in the Middle East through our Dubai office, the development of new internet-based investment services and mobile technologies and the integration of specific front office client management technology purchased in 2012. The family wealth management solution offers flexible family-office type services through a highly personalized solution while utilizing the Manager-of-Managers investment process.
The principal competitors for the family wealth solution are diversified financial services providers focused on the ultra-high-net-worth market.
Research and Development
We are devoting significant resources to research and development, including expenditures for new technology platforms, enhancements to existing technology platforms and new investment products and services. We spent approximately $98.6 million in 2014, $91.8 million in 2013, and $79.6 million in 2012, of which we capitalized approximately $34.9 million in 2014, $30.7 million in 2013 and $31.0 million in 2012 relating to the development of new technology platforms. The amount of research and development expenditures capitalized in 2013 is exclusive of a one-time contractual payment of $8.8 million to exercise a conversion option in lieu of periodic fee payments pertaining to a software license for functionality utilized by the SEI Wealth Platform. Total research and development expenditures as a percentage of revenues were 7.8 percent in 2014, 8.2 percent in 2013 and 8.0 percent in 2012. Our research and development expenditures are included in Compensation, benefits and other personnel and Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.
The majority of our research and development spending is related to building the SEI Wealth Platform, which combines business service processing with asset management and distribution services. The Platform offers to our customers a client-centric, rather than an account-centric, process with model-based portfolio management services through a single platform. The Platform utilizes our proprietary applications with those built by third-party providers and integrates them into a single technology solution, providing a common user experience. This integration supports straight-through business processing and enables the transformation of our clients’ trust services from operational investment processing services to client value-added services.
The solution will serve markets in the United States, United Kingdom, Canada and continental European markets. The Platform provides the technology infrastructure for the business solutions now being marketed to private banks and independent wealth adviser organizations in the United States and the United Kingdom. We believe the demand for the advanced capabilities of the Platform will enable us to significantly extend, expand and improve the services we offer in the Investment Advisors segment.
The Platform will eventually be used at some level by most of our business segments representing a significant upgrade to our infrastructure. The Platform will enable SEI and our clients to manage the entire lifecycle of wealth services through a single solution. The workflow automation, firm’s business rules and straight through processing to the street will dramatically change the client experience, help firms manage risk and allow for total transparency.
Marketing and Sales
Our business solutions are directly marketed to potential clients in our target markets. At January 30, 2015, we employed 104 sales representatives who operate from offices located throughout the United States, Canada, the United Kingdom, continental Europe, South Africa, Asia and other locations.

Page 8 of 77



Customers
In 2014, no single customer accounted for more than ten percent of revenues in any business segment.
Personnel
At January 30, 2015, we had 2,772 full-time and 52 part-time employees. Employee unions do not represent any of our employees. Management considers employee relations to be generally good.
Regulatory Considerations
Our principal, regulated wholly-owned subsidiaries are SEI Investments Distribution Co., or SIDCO, SEI Investments Management Corporation, or SIMC, SEI Private Trust Company, or SPTC, SEI Trust Company, or STC, and SEI Investments (Europe) Limited, or SIEL. SIDCO is a broker-dealer registered with the SEC under the Securities and Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA). SIMC is an investment advisor registered with the SEC under the Investment Advisers Act of 1940 and with the Commodity Futures Trading Commission (CFTC) under the Commodity Futures Exchange Act. SPTC is a limited purpose federal thrift chartered and regulated by the Office of the Comptroller of the Currency. STC is a Pennsylvania trust company, regulated by the Pennsylvania Department of Banking and Securities. SIEL is an investment manager and financial institution subject to regulation by the Financial Conduct Authority of the United Kingdom. In addition, various SEI subsidiaries are subject to the jurisdiction of regulatory authorities in Canada, the Republic of Ireland and other foreign countries. The Company has a minority ownership interest of approximately 39.3 percent in LSV, which is also an investment advisor registered with the SEC.
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 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 and fines 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 legislative activity in the United States (including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and attendant rule making activities) 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

Page 9 of 77



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, review our compliance procedures, solution and service offerings, and business operations, and make changes as we deem necessary. These additional activities and required changes may result in increased expense or may reduce revenues.
Our bank clients are subject to supervision by federal and state banking 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” for a description of the risks that proposed regulatory changes may present for our business.
Available Information
We maintain a website at www.seic.com and make available free of charge through the Investors section of this website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We include our website in this Annual Report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our website. The material on our website is not part of this Annual Report on Form 10-K.
Item 1A. Risk Factors.
We believe that the risks and uncertainties described below are those that impose the greatest threat to the sustainability of our business. However, there are other risks and uncertainties that exist that may be unknown to us or, in the present opinion of our management, do not currently pose a material risk of harm to us. The risk and uncertainties facing our business, including those described below, could materially adversely affect our business, results of operations, financial condition and liquidity.
Our revenues and earnings are affected by changes in capital markets. A majority of our revenues are earned based on the value of assets invested in investment products that we manage or administer. Significant fluctuations in securities prices may materially affect the value of these assets and may also influence an investor’s decision to invest in and maintain an investment in a mutual fund or other investment product. As a result, our revenues and earnings derived from assets under management and administration could be adversely affected.
We are dependent on third party pricing services for the valuation of securities invested in our investment products. The majority of the securities held by our investment products are valued using quoted prices from active markets gathered by external third party pricing services. Securities for which market prices are not readily available are valued in accordance with procedures applicable to that investment product. These procedures may utilize unobservable inputs that are not gathered from any active markets and involve considerable judgment. If these valuations prove to be inaccurate, our revenues and earnings from assets under management could be adversely affected.
We are exposed to product development risk. We continually strive to increase revenues and meet our customers' needs by introducing new products and services. As a result, we are subject to product development risk, which may result in loss if we are unable to develop and deliver products to our target markets that address our clients' needs and that are developed on a timely basis and reflect an attractive value proposition. The majority of our product development risk pertains to the SEI Wealth Platform, our newest technology that serves U.K., European and U.S. clients. It is designed to drive our entry into global private bank and wealth services markets and expand our U.S. market opportunity, improve client experience capabilities and strengthen operating efficiencies by providing straight through business processing solutions and transform the front, middle and back office operations that exist today. New product development is primarily for the purpose of enhancing our competitive position in the industry. In the event that we fail to develop products or services at an acceptable cost or on a timely basis or if we fail to deliver products and services which are of sound, economic value to our clients and our target markets, or an inability to support the product in a cost-effective and compliant manner, we may recognize significant financial losses.
We are dependent upon third-party service providers in our operations. We utilize numerous third-party service providers located in the United States, the United Kingdom and other offshore locations in our operations, in the development of new products, and in the maintenance of our proprietary systems. A failure by a third-party service provider could expose us to an inability to provide contractual services to our clients in a timely basis. Additionally, if a third-party service provider is unable

Page 10 of 77



to provide these services, we may incur significant costs to either internalize some of these services or find a suitable alternative.
We serve as the investment advisor for many of the products offered through our investment management programs and utilize the services of investment sub-advisers to manage the majority of these assets. A failure in the performance of our due diligence processes and controls related to the supervision and oversight of these firms in detecting and addressing conflicts of interest, fraudulent activity, noncompliance with relevant securities and other laws could cause us to suffer financial loss, regulatory sanctions or damage to our reputation.
We are exposed to operational risks. Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, inefficiencies in our operational business units, business disruptions and inadequacies or breaches in our internal control processes. We operate different businesses in diverse markets and are reliant on the ability of our employees and systems to process large volumes of transactions often within short time frames. In the event of a breakdown or improper operation of systems, human error or improper action by employees, we could suffer financial loss, regulatory sanctions or damage to our reputation. In order to mitigate and control operational risk, we continue to enhance policies and procedures that are designed to identify and manage operational risk.
We are exposed to systems and technology risks. Through our proprietary systems, we maintain and process data for our clients that is critical to their business operations. An unanticipated interruption of service may have significant ramifications, such as lost data, damaged software codes, or inaccurate processing of transactions. As a result, the costs necessary to rectify these problems may be substantial. Our continued success also depends in part on our ability to protect our proprietary technology and solutions and to defend against infringement claims of others. We primarily rely upon trade secret law, software security measures, copyrights and confidentiality restrictions in contracts with employees, vendors and customers. Our industry is characterized by the existence of a large number of trade secrets, copyrights and the rapid issuance of patents, as well as frequent litigation based on allegations of infringement or other violations of intellectual property rights of others. A successful assertion by others of infringement claims or a failure to maintain the confidentiality and exclusivity of our intellectual property may have a material adverse effect on our business and financial results.
We are exposed to data and cyber security risks. A failure to safeguard the integrity and confidentiality of client data and our proprietary data from the infiltration by an unauthorized user may lead to modifications or theft of critical and sensitive data pertaining to us or our clients. We have established a strategy designed to protect against threats and vulnerabilities containing preventive and detective controls including, but not limited to, firewalls, intrusion detection systems, computer forensics, vulnerability scanning, server hardening, penetration testing, anti-virus software, data leak prevention, encryption and centralized event correlation monitoring. Despite our efforts to ensure the integrity of our proprietary systems and information, it is possible that we may not be able to anticipate or to implement effective preventive measures against all cyber threats, especially because the methods used change frequently or are not recognized until launched. Additionally, security breaches or disruptions of our proprietary systems, or those of our service providers, could impact our ability to provide services to our clients, which could expose us to liability for damages which may not be covered by insurance, result in the loss of customer business, damage our reputation, subject us to regulatory scrutiny or expose us to civil litigation. In addition, the failure to upgrade or maintain our computer systems, software and networks, as necessary, could also make us susceptible to breaches and unauthorized access and misuse. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cyber security risks. Furthermore, even if not directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financial system. As a result of the importance of communications and information systems to our business, we could also be adversely affected if attacks affecting our third party service providers impair our ability to process transactions and communicate with clients and counterparties.
Poor investment performance may affect our revenues and earnings. Our ability to maintain our existing clients and attract new clients may be negatively affected if the performance of our mutual funds and other investment products, relative to market conditions and other comparable competitive investment products, is lower. Investors may decide to place their investable funds elsewhere which would reduce the amount of assets we manage resulting in a decrease in our revenues and earnings.
Our earnings and cashflows are affected by the performance of LSV. We maintain a minority ownership interest in LSV which is a significant contributor to our earnings. We also receive partnership distribution payments from LSV on a quarterly basis which contribute to our operating cashflows. LSV is a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies. LSV is a value-oriented, contrarian money manager offering a deep-value investment alternative utilizing a proprietary equity investment model to identify securities generally considered to be out of favor by the market. Volatility in the capital markets or poor investment performance on the part of LSV, on a relative basis or an absolute basis, could result in a significant reduction in their assets under management and revenues and a

Page 11 of 77



reduction in performance fees. Consequently, LSV's contribution to our earnings through our minority ownership as well as to our operating cashflows through LSV's partnership distribution payments could be adversely affected.
In addition, we provided an unsecured guaranty for $45.0 million of the obligations of LSV Employee Group III in connection with their purchase of a partnership interest in LSV, of which $38.7 million remains outstanding at December 31, 2014. The ability of LSV Employee Group III to successfully repay their loan obligation subject to our guaranty is dependent upon the level of quarterly partnership distribution payments from LSV. In the event that LSV Employee Group III does not receive sufficient partnership distribution payments from LSV or is otherwise unable to meet all of their financial obligations regarding the loan, the lenders have the right to seek payment from us for the outstanding obligations. The repayment of such obligations related to our guaranty agreement may negatively affect our operating results, liquidity and financial condition.
Our Company and our clients are subject to extensive governmental regulation. Our various business activities are conducted through entities which may be registered with or regulated by the SEC and CFTC as an investment advisor, a broker-dealer, a transfer agent, or an investment company, and with federal or state banking authorities as a trust company. Our broker-dealer is also a member of the Financial Industry Regulatory Authority and is subject to its rules and oversight. In addition, some of our foreign subsidiaries are registered with, and subject to the oversight of, regulatory authorities primarily in the United Kingdom, the Republic of Ireland and Canada. Many of our clients are subject to substantial regulation by federal and state banking, securities or insurance authorities or the Department of Labor. Compliance with existing and future regulations, responding to and complying with recent regulatory activity affecting broker-dealers, investment advisors, investment companies and their service providers and financial institutions, and examination or other supervisory activities of our regulators or of the regulators of our clients, could have a significant impact on our operations or business or our ability to provide certain products or services.
We offer investment and banking products 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 products could lead to a reduction in sales of these products or an increase in the cost of providing these products.
The fees and assessments imposed on our regulated subsidiaries by federal, state and foreign regulatory authorities could have a significant impact on us. In the current regulatory environment, the frequency and scope of regulatory reform may lead to an increase in fees and assessments resulting in increased expense, or an increase or change in regulatory requirements which could affect our operations and business.
We are subject to litigation and regulatory examinations and investigations. The financial services industry faces substantial regulatory risks and litigation. Like many firms operating within the financial services industry, we are experiencing a difficult regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry; 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, have made this an increasingly challenging and costly regulatory environment in which to operate. These examinations or investigations could result in the identification of matters that may require remediation activities or enforcement proceedings by the regulator. The direct and indirect costs of responding to these examinations, or of defending ourselves in any litigation could be significant. Additionally, actions brought against us may result in settlements, awards, injunctions, fines and penalties. The outcome of litigation or regulatory action is inherently difficult to predict and could have an adverse effect on our ability to offer some of our products and services.
Consolidation within our target markets may affect our business. Merger and acquisition activity between banks and other financial institutions could reduce the number of existing and prospective clients or reduce the amount of revenue we receive from retained clients. Consolidation activities may also cause larger institutions to internalize some or all of our services. These factors may negatively impact our ability to generate future growth in revenues and earnings.
We are dependent upon third party approvals. Many of the investment advisors through which we distribute our investment offerings are affiliated with independent broker-dealers or other networks, which have regulatory responsibility for the advisor’s practice. As part of the regulatory oversight, these broker-dealers or networks must approve the use of our investment products by affiliated advisors within their networks. Failure to receive such approval, or the withdrawal of such approval, could adversely affect the marketing of our investment products.
We are subject to financial and non-financial covenants which may restrict our ability to manage liquidity needs. Our $300.0 million five-year senior unsecured revolving credit facility (Credit Facility) contains financial and non-financial covenants. The non-financial covenants include restrictions on indebtedness, mergers and acquisitions, sale of assets and investments. In the event of default, we have restrictions on paying dividends and repurchasing our common stock. We have one financial covenant, the Leverage Ratio, which restricts the level of indebtedness we can incur to a maximum of 1.75 times earnings before interest, taxes, depreciation and amortization (EBITDA). We believe our primary risk is with the financial covenant if

Page 12 of 77



we were to incur significant unexpected losses that would impact the EBITDA calculation. This would increase the Leverage Ratio and restrict the amount we could borrow under the Credit Facility. A restriction on our ability to fully utilize our Credit Facility may negatively affect our operating results, liquidity and financial condition.
Changes in, or interpretation of, accounting principles could affect our revenues and earnings. We prepare our consolidated financial statements in accordance with generally accepted accounting principles. A change in these principles can have a significant effect on our reported results and may even retrospectively affect previously reported results.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be adversely affected by changes in tax laws or the interpretation of tax laws. We are subject to possible examinations of our income tax returns by the Internal Revenue Service and state and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, however, there can be no assurance that the final determination of any examination will not have an adverse effect on our operating results or financial position.
Currency fluctuations could negatively affect our future revenues and earnings as our business grows globally. We operate and invest globally to expand our business into foreign markets. Our foreign subsidiaries use the local currency as the functional currency. As these businesses evolve, our exposure to changes in currency exchange rates may increase. Adverse movements in currency exchange rates may negatively affect our operating results, liquidity and financial condition.
Changes in interest rates may affect the value of our fixed-income investment securities. We own Government National Mortgage Association (GNMA) mortgage-backed securities for the sole purpose of satisfying applicable regulatory requirements imposed on our wholly-owned limited purpose federal thrift subsidiary, SPTC. The valuations of these securities are impacted by fluctuations in interest rates. Interest rates during the past several years have remained relatively low. The effect of a rising interest rate environment may negatively impact the value of these securities and thereby negatively affect our financial position and earnings.
We rely on our executive officers and senior management. Most of our executive officers and senior management personnel do not have employment agreements with us. The loss of these individuals may have a material adverse effect on our future operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters is located in Oaks, Pennsylvania and consists of nine buildings situated on approximately 90 acres. We own and operate the land and buildings, which encompass approximately 524,000 square feet of office space and 34,000 square feet of data center space. We lease other offices which aggregate 65,000 square feet. We also own a 3,400 square foot condominium that is used for business purposes in New York, New York.
Item 3. Legal Proceedings.
SEI has been named in six lawsuits filed in Louisiana. Five lawsuits were filed in the 19th Judicial District Court for the Parish of East Baton Rouge. One of the five actions purports to set forth claims on behalf of a class and also names SPTC as a defendant. Two of the other actions also name SPTC as a defendant. All five actions name various defendants in addition to SEI, and, in all five actions, the plaintiffs purport to bring a cause of action against SEI and/or SPTC under the Louisiana Securities Act. Two of the five actions include claims for violations of the Louisiana Racketeering Act and possibly conspiracy. In addition, another group of plaintiffs filed a lawsuit in the 23rd Judicial District Court for the Parish of Ascension against SEI and SPTC and other defendants, asserting claims of negligence, breach of contract, breach of fiduciary duty, violations of the uniform fiduciaries law, negligent misrepresentation, detrimental reliance, violations of the Louisiana Securities Act and Louisiana Racketeering Act, and conspiracy. The underlying allegations in all actions relate to the purported role of SPTC in providing back-office services to Stanford Trust Company. The petitions allege that SEI and SPTC aided and abetted or otherwise participated in the sale of “certificates of deposit” issued by Stanford International Bank.
The case filed in Ascension Parish was removed to federal court and transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Northern District of Texas. The schedule for responding to that petition has not yet been established.
The plaintiffs in two of the cases filed in East Baton Rouge have granted SEI and SPTC an indefinite extension to respond to the petitions.

Page 13 of 77



In a third East Baton Rouge action, brought as a class action, SEI and SPTC filed exceptions, which the Court granted in part, dismissing the claims under the Louisiana Unfair Trade Practices Act. Plaintiffs then filed a motion for class certification, and SEI and SPTC also filed a motion for summary judgment. The Court deferred the motion for summary judgment, stating that the motion would not be set for hearing until after the hearing on class certification. After the Court held a hearing on class certification, it certified a class composed of persons who purchased or renewed any Stanford International Bank certificates of deposit (SIB CDs) in Louisiana between January 1, 2007 and February 13, 2009 or any person for whom the Stanford Trust Company purchased SIB CDs in Louisiana between January 1, 2007 and February 13, 2009. SEI and SPTC filed motions for appeal from the class certification judgments. On February 1, 2013, plaintiffs filed a motion for Leave to File a First Amended and Restated Class Action Petition in which they asked the Court to allow them to amend the petition and add claims against certain of SEI's insurance carriers. On February 5, 2013, the Court granted two of the motions for appeal and the motion for leave to amend. On February 28, 2013, SEI responded to the First Amended and Restated Class Action Petition by seeking dismissal of the action. On March 11, 2013, the newly-added insurance carrier defendants removed the case to the Middle District of Louisiana. SEI notified the Judicial Panel on Multidistrict Litigation (MDL) of this case as a potential tag-along action. Plaintiffs filed a motion to remand the action to state court. On March 25, 2013, SEI filed a motion requesting that the federal court decline to adopt the state court's order regarding class certification, which the court dismissed without prejudice to renew upon a determination of the jurisdictional issue. On August 7, 2013, the MDL Panel transferred the matter against SEI to the Northern District of Texas. On October 1, 2014, SEI filed a renewed motion to dismiss in the Northern District of Texas, and on October 6, 2014, the District Court denied plaintiffs’ motion to remand. This case is now pending in the Northern District of Texas, and SEI is awaiting a ruling on its motion to dismiss.
In the two other cases filed in East Baton Rouge, brought by the same counsel who filed the class action, virtually all of the litigation to date has involved motions practice and appellate litigation regarding the existence of federal subjection matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). After the matter was removed to the United States District Court for the Northern District of Texas, that court dismissed the action under SLUSA. The Court of Appeals for the Fifth Circuit reversed that order, and the Supreme Court of the United States affirmed the Court of Appeals judgment on February 26, 2014. The matter was remanded to state court and no material activity has taken place since that date.
While the outcome of this litigation is uncertain given its early phase, SEI and SPTC believe that they have valid defenses to plaintiffs' claims and intend to defend the lawsuits vigorously. Because of the uncertainty of the make-up of the classes, the specific theories of liability that may survive a motion for summary judgment or other dispositive motion, the lack of discovery regarding damages, causation, mitigation and other aspects that may ultimately bear upon loss, the Company is not reasonably able to provide an estimate of loss, if any, with respect to the foregoing lawsuits.
A lawsuit entitled Steven Curd and Rebel Curd v. SEI Investments Management Corporation was filed against SIMC in the United States District Court for the Eastern District of Pennsylvania on December 11, 2013. On August 28, 2014, the Court granted SIMC’s motion to dismiss the initial complaint in the lawsuit, but also granted plaintiffs leave to amend the complaint. On October 2, 2014, plaintiffs filed an amended complaint. In the amended complaint, SEI Investments Global Funds Services (SGFS) was added as a defendant. The plaintiffs bring the case as a shareholder derivative action against SIMC and SGFS on behalf of certain SEI funds. The claims are based on Section 36(b) of the Investment Company Act of 1940, as amended, which allows shareholders of a mutual fund to sue the investment adviser of the fund or its affiliates for an alleged breach of fiduciary duty with respect to compensation received by the adviser or its affiliates. The plaintiffs have brought the suit against SIMC and SGFS with respect to five specific SEI Funds: the High Yield Bond, Tax-Managed Large Cap, and Tax-Managed Small/Mid Cap Funds, each of which is a series of the SEI Institutional Managed Trust, the Intermediate Term Municipal Fund, which is a series of the SEI Tax Exempt Trust, and the International Equity Fund, which is a series of the SEI Institutional International Trust (the SEI Funds). The plaintiffs seek: (1) damages for the SEI Funds in the amount of the alleged “excessive” fees earned by SIMC and SGFS beginning from the one year period prior to the filing of the lawsuit, plus interest, costs, and fees; (2) orders declaring that SIMC and SGFS allegedly violated Section 36(b) and enjoining SIMC and SGFS from further alleged violations; and (3) rescission of SIMC’s and SGFS’s contracts with the funds, and restitution of all allegedly excessive fees paid beginning from the one year period prior to the filing of the lawsuit, plus interest, costs, and fees. On November 24, 2014, SIMC and SGFS filed a motion to dismiss the amended complaint. The court has not yet ruled on that motion. While the outcome of this litigation is uncertain given its early phase, SIMC and SGFS believe that they have valid defenses to plaintiffs' claims and intend to defend the lawsuit vigorously, and SIMC and SGFS are not reasonably able to provide an estimate of the ultimate loss, if any, with respect to this lawsuit.
On November 26, 2014, a Writ of Summons was issued to two of our subsidiaries, SEI Investments - Global Fund Services Limited (GFSL) and SEI Investments - Trustee & Custodial Services (Ireland) Limited (T&C), to appear before the Court of First Instance Antwerp, Belgium on March 11, 2015. The plaintiffs in this case allege that through their initial investments in collective investment funds domiciled in Netherlands and subsequent transfer of claim rights to a Belgium domiciled partnership, they are beneficial owners of a portfolio of life settlement policies (the Portfolio) which lapsed due to a failure to make premium payments. The plaintiffs seek to recover jointly and severally from nine defendants including GFSL and T&C, damages of approximately $84 million. GFSL and T&C’s involvement in the litigation appears to arise out of their historical

Page 14 of 77



provision of administration and custody services respectively, to the Strategic Life Settlement Fund PLC, who, together with its managers, appear to be the principal defendants in this claim. While the outcome of this action is uncertain given its early phase and the lack of specific theories of liability asserted against GFSL and T&C, each of GFSL and T&C believe that they have valid defenses to plaintiffs’ claims and intend to defend the lawsuit vigorously.
Executive Officers of the Registrant
Information about our executive officers is contained in Item 10 of this report and is incorporated by reference into this Part I.
Item 4. Mine Safety Disclosures.
None.

Page 15 of 77




PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Price Range of Common Stock and Dividends:
Our common stock is traded on The Nasdaq Global Select Market® (NASDAQ) under the symbol “SEIC.” The following table shows the high and low sales prices for our common stock as reported by NASDAQ and the dividends declared on our common stock for the last two years. Our Board of Directors intends to declare future dividends on a semiannual basis.
2014
 
High
 
Low
 
Dividends
First Quarter
 
$
35.57

 
$
32.38

 
$

Second Quarter
 
33.80

 
29.93

 
0.22

Third Quarter
 
38.14

 
31.90

 

Fourth Quarter
 
41.22

 
32.95

 
0.24

2013
 
High
 
Low
 
Dividends
First Quarter
 
$
29.22

 
$
23.80

 
$

Second Quarter
 
31.29

 
27.08

 
0.20

Third Quarter
 
32.64

 
27.84

 

Fourth Quarter
 
34.97

 
30.19

 
0.22

According to the records of our transfer agent, there were 332 holders of record of our common stock on January 30, 2015. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
For information on our equity compensation plans, refer to Note 8 to the Consolidated Financial Statements and Item 12 of this Annual Report on Form 10-K.    
ASSUMES $100 INVESTED ON JANUARY 1, 2010 & DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 31,

Page 16 of 77



Issuer Purchases of Equity Securities:
Our Board of Directors has authorized the repurchase of up to $2.578 billion worth of our common stock through multiple authorizations. Currently, there is no expiration date for our common stock repurchase program (See Note 8 to the Consolidated Financial Statements).
Information regarding the repurchase of common stock during the three months ended December 31, 2014 is:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
 
Approximate Dollar
Value of Shares that
May Yet Be
Purchased
Under the Program
October 1 – 31, 2014
 
140,000

 
$
38.12

 
140,000

 
$
59,937,000

November 1 – 30, 2014
 
588,000

 
39.12

 
588,000

 
36,928,000

December 1 – 31, 2014
 
855,000

 
40.04

 
855,000

 
102,713,000

Total
 
1,583,000

 
$
39.53

 
1,583,000

 
 
Item 6. Selected Financial Data.
(In thousands, except per-share data)
This table presents selected consolidated financial information for the five-year period ended December 31, 2014. This data should be read in conjunction with the financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.
Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Revenues
 
$
1,266,005

 
$
1,126,132

 
$
992,522

 
$
929,727

 
$
900,835

Total expenses
 
913,221

 
877,723

 
780,956

 
725,662

 
683,302

Income from operations
 
352,784

 
248,409

 
211,566

 
204,065

 
217,533

Other income (expense)
 
136,878

 
186,989

 
117,930

 
114,422

 
152,248

Income before income taxes
 
489,662

 
435,398

 
329,496

 
318,487

 
369,781

Income taxes
 
170,949

 
146,924

 
121,462

 
111,837

 
136,461

Net income
 
318,713

 
288,474

 
208,034

 
206,650

 
233,320

Less: Net income attributable to the noncontrolling interest
 

 
(350
)
 
(1,186
)
 
(1,691
)
 
(1,633
)
Net income attributable to SEI Investments
 
318,713

 
288,124

 
206,848

 
204,959

 
231,687

Basic earnings per common share
 
$
1.89

 
$
1.68

 
$
1.19

 
$
1.12

 
$
1.23

Shares used to calculate basic earnings per common share
 
168,246

 
171,561

 
174,295

 
182,547

 
188,468

Diluted earnings per common share
 
$
1.85

 
$
1.64

 
$
1.18

 
$
1.11

 
$
1.22

Shares used to calculate diluted earnings per common share
 
172,565

 
175,718

 
175,872

 
184,127

 
190,321

Cash dividends declared per common share
 
$
0.46

 
$
0.42

 
$
0.63

 
$
0.27

 
$
0.20

Financial Position as of December 31,
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
667,446

 
$
578,273

 
$
452,247

 
$
420,986

 
$
496,292

Total assets
 
1,542,875

 
1,439,169

 
1,309,824

 
1,294,559

 
1,377,223

Long-term debt (including current portion)
 

 

 

 

 
95,000

SEI Investments Shareholders’ equity
 
1,247,613

 
1,156,002

 
1,038,180

 
1,025,316

 
1,041,570



Page 17 of 77



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(In thousands, except share and per-share data)
This discussion reviews and analyzes the consolidated financial condition at December 31, 2014 and 2013, the consolidated results of operations for the years ended December 31, 2014, 2013 and 2012, and other factors that may affect future financial performance. This discussion should be read in conjunction with the Selected Financial Data included in Item 6 of this Annual Report and the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report.
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.
Overview
Consolidated Summary
We are a leading global provider of investment processing, investment management and investment operations solutions. We help corporations, financial institutions, financial advisors and ultra-high-net-worth families create and manage wealth by providing comprehensive, innovative, investment and investment-business solutions. Investment processing fees are earned as monthly fees for contracted services, including computer processing services, software licenses and investment operations services, as well as transaction-based fees for providing securities valuation and trade-execution. Investment operations and investment management fees are earned as a percentage of average assets under management or administration. As of December 31, 2014, through our subsidiaries and partnerships in which we have a significant interest, we manage or administer $625.4 billion in mutual fund and pooled or separately managed assets, including $252.8 billion in assets under management and $372.6 billion in client assets under administration.
Our Condensed Consolidated Statements of Operations for the years ended 2014, 2013 and 2012 were:
Year Ended December 31,
 
2014
 
2013
 
Percent
Change
 
2012
 
Percent
Change
Revenues
 
$
1,266,005

 
$
1,126,132

 
12
 %
 
$
992,522

 
13
 %
Expenses
 
913,221

 
877,723

 
4
 %
 
780,956

 
12
 %
Income from operations
 
352,784

 
248,409

 
42
 %
 
211,566

 
17
 %
Net gain from investments
 
614

 
659

 
(7
)%
 
14,067

 
(95
)%
Interest income, net of interest expense
 
2,896

 
2,713

 
7
 %
 
5,192

 
(48
)%
Equity in earnings of unconsolidated affiliates
 
127,786

 
118,076

 
8
 %
 
98,671

 
20
 %
Gain on sale of subsidiary
 
5,582

 
22,112

 
NM

 

 
NM

Other income
 

 
43,429

 
NM

 

 
NM

Income before income taxes
 
489,662

 
435,398

 
12
 %
 
329,496

 
32
 %
Income taxes
 
170,949

 
146,924

 
16
 %
 
121,462

 
21
 %
Net income
 
318,713

 
288,474

 
10
 %
 
208,034

 
39
 %
Less: Net income attributable to the noncontrolling interest
 

 
(350
)
 
NM

 
(1,186
)
 
(70
)%
Net income attributable to SEI Investments Company
 
$
318,713

 
$
288,124

 
11
 %
 
$
206,848

 
39
 %
Diluted earnings per common share
 
$
1.85

 
$
1.64

 
13
 %
 
$
1.18

 
39
 %

Significant Items Impacting Our Financial Results in 2014
Revenues increased $139.9 million, or 12 percent, to $1.3 billion in 2014 compared to 2013. Net income attributable to SEI increased $30.6 million, or 11 percent, to $318.7 million and diluted earnings per share increased to $1.85 per share in 2014 compared to $1.64 per share in 2013. We believe the following items were significant to our business results during 2014:
Revenue growth was primarily driven by higher Asset management, administration and distribution fees from positive cash flows from new and existing clients and market appreciation. Our average assets under management, excluding LSV, increased $19.5 billion, or 13 percent, to $164.9 billion during 2014 as compared to $145.4 billion during 2013. Our average assets under administration increased $54.5 billion, or 18 percent, to $354.3 billion during 2014 as compared to $299.8 billion during 2013.

Page 18 of 77



The increase in our average assets under management primarily resulted from the favorable capital market conditions and new client funding in our Institutional Investors segment, increased investment management fees from international clients in our Private Banks segment, and positive net cash flows from new and existing advisor relationships in our Investment Advisors segment. The increase in our assets under administration primarily resulted from market appreciation and new client funding across all of our products offered in our Investment Managers segment.
Revenue growth was also driven by increased information processing fees in our Private Banks segment. The increase in our information processing fees was primarily attributable to higher fees from the growth in assets processed on the SEI Wealth Platform and increased fees from our mutual fund trading solution. In addition, we also recognized $6.0 million in non-recurring professional services fees from a single project in the second quarter 2014.
Our proportionate share in the earnings of LSV was $140.2 million in 2014 as compared to $119.0 million in 2013, an increase of 18 percent. The increase was primarily driven by higher assets under management of LSV from existing clients due to market appreciation and an increase in performance fees earned by LSV.
Stock-based compensation expense decreased by $24.4 million during 2014 due to the acceleration of expense recognition during 2013 for stock options that achieved performance vesting targets earlier than previously estimated as a result of unexpected, non-recurring events which were not part of our normal business operations (See the caption "Stock-Based Compensation" later in this discussion for more information).
The direct costs associated with our investment management programs increased in our Private Banks and Institutional Investors segments. These costs primarily relate to fees charged by investment advisory firms and are included in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.
Our operating expenses related to personnel in our Private Banks and Investment Managers segments increased. These increased operational costs, primarily attributable to salary and incentive compensation, are mainly related to servicing new and existing clients.
We capitalized $34.9 million in 2014 for significant enhancements and new functionality for the SEI Wealth Platform as compared to $39.5 million in 2013. Included in the amount for 2013 is a one-time contractual payment of $8.8 million to exercise a conversion option in lieu of periodic fee payments pertaining to a software license related to the Platform. Amortization expense related to capitalized software was $38.5 million during 2014 as compared to $34.4 million during 2013 primarily due to continued enhancements to the Platform. Our non-capitalized development costs associated with the Platform increased due to higher personnel and consulting costs.
Our operating margins in all four core business segments improved in 2014 mainly due to increased recurring revenues generated from the higher levels of assets under management and administration as previously discussed.
We recorded a pre-tax charge of $11.3 million against earnings during the fourth quarter for the write down of our investment in a wealth services firm based in China (See the caption "Equity in earnings of unconsolidated affiliates" later in this discussion for more information).
We recorded a pre-tax gain of $5.6 million, or $0.02 diluted earnings per share, in 2014 from the sale of SEI Asset Korea (SEI AK) which was completed during the first quarter 2013. This gain was the result of the first in a series of three annual payments related to the contingent purchase price we received from the sale. The gain from the sale is included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations (See Note 15 to the Consolidated Financial Statements for more information).
Our effective tax rate was 34.9 percent in 2014 as compared to 33.7 percent in 2013. The increase in our tax rate was primarily due to a one time reduction in 2013 from a Pennsylvania state tax law change (See the caption "Income Taxes" later in this discussion for more information).
We continued our stock repurchase program and purchased approximately 7,888,000 shares at an average price of $35.29 per share for a total cost of $278.4 million.
Significant Items Impacting Our Financial Results in 2013
Revenues increased $133.6 million, or 13 percent, to $1.1 billion in 2013 compared to 2012. Net income attributable to SEI increased $81.3 million, or 39 percent, to $288.1 million and diluted earnings per share increased to $1.64 per share in 2013 compared to $1.18 per share in 2012. We believe the following items were significant to our business during 2013:
Revenue growth was primarily driven by higher Asset management, administration and distribution fees from positive cash flows from new and existing clients and market appreciation. Our average assets under management, excluding LSV, increased $14.9 billion, or 11 percent, to $145.4 billion during 2013 as compared to $130.5 billion during 2012.
Sales of new business in our Institutional Investors and Investment Managers segments as well as positive cash receipts from new and existing advisor relationships in our Investment Advisors segment contributed to the increase in our revenues and profits.

Page 19 of 77



Revenue growth was also driven by increased Information processing and software servicing fees in our Private Banks segment. The increase was primarily attributable to new business and increased fees earned from our mutual fund trading solution.
We recorded income of $43.4 million, or $0.16 diluted earnings per share, from a cash settlement payment received during the second quarter pertaining to litigation related to the purchase of securities of Cheyne Finance LLC, a structured investment vehicle (SIV) security (See Note 16 to the Consolidated Financial Statements for more information).
Our proportionate share in the earnings of LSV was $119.0 million in 2013 as compared to $100.0 million in 2012, an increase of 19 percent. The increase in our earnings was primarily driven by the increase in assets under management of LSV from existing clients due to market appreciation and an increase in performance fees earned by LSV. Our earnings from LSV, however, were negatively impacted by the decrease in our ownership interest from approximately 39.8 percent to approximately 39.3 percent during the second quarter.
Our sale of SEI AK was completed during the first quarter resulting in a gain of $22.1 million, or $0.08 diluted earnings per share. The operating results of SEI AK were included in the Private Banks business segment (See Note 15 to the Consolidated Financial Statements for more information).
The direct costs associated with our investment management programs increased in our Private Banks and Institutional Investors segments. These costs primarily relate to fees charged by investment advisory firms and are included in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.
Our operating expenses related to personnel and third-party service providers in our Private Banks and Investment Managers segments increased. These increased operational costs are mainly related to servicing new and existing clients and are included in Compensation, benefits and other personnel as well as Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.
Stock-based compensation expense increased by $22.1 million during 2013 as compared 2012 due mainly to a change in our estimate of the timing of when stock option vesting targets will be achieved. The change in our estimate resulted from the positive earnings impacts from the previously mentioned cash payment for the litigation settlement and the sale of SEI AK during 2013 (See the caption "Stock-Based Compensation" later in this discussion for more information).
We capitalized $39.5 million in 2013 for significant enhancements and new functionality for the SEI Wealth Platform as compared to $31.0 million in 2012. Included in the amount for 2013 is a one-time contractual payment of $8.8 million to exercise a conversion option in lieu of periodic fee payments pertaining to a software license related to the Platform. Amortization expense related to capitalized software increased to $34.4 million during 2013 as compared to $32.6 million during 2012 primarily due to continued enhancements to the Platform. Amortization expense during 2012 includes $2.7 million of expense related to the remaining net book value of a component of the Platform that was discontinued.
Corporate overhead costs increased due to increased stock-based compensation, increased personnel costs and higher costs related to regulatory and compliance matters.
Our effective tax rates were 33.7 percent in 2013 and 36.9 percent in 2012. The 2013 tax rate was benefited by the changes to the Pennsylvania Tax Law primarily relating to the method of apportioning income to Pennsylvania. These changes have dramatically reduced the deferred tax liability which had accumulated during prior years. Our 2013 tax rate was also benefited by the reinstatement of the research and development tax credit. The 2012 tax rate included the U.S. deferred taxes on the undistributed earnings of SEI AK (See the caption "Income Taxes" later in this discussion for more information).
We continued our stock repurchase program and purchased approximately 6,789,000 shares at an average price of $30.92 per share for a total cost of $209.9 million.
Product Development - SEI Wealth Platform
Much of our product development efforts have been focused on building and delivering the SEI Wealth Platform. The Platform is a business solution heavily supported by technology to drive our entry into the European private bank market, improve client experience capabilities, and strengthen operating efficiencies. The Platform combines internally built functionality and third party applications and integrates them into a single solution with a single user experience. The goal is to provide straight through business processing and transform the middle and back office operations that exist today. The capabilities of the Platform will expand our service offerings to include large financial institutions, investment advisors, insurance companies, brokerage houses, and other similar institutions. In addition, the capabilities of the Platform provide us the opportunity to enter into new global markets.
We will continue to focus our development efforts on enhancing the functionality of the Platform and building the operational infrastructure for a wider deployment of the Platform to financial institutions and investment advisors in the United States.

Page 20 of 77



Future enhancements to the Platform may replace significant existing components or functionality. Once these enhancements are completed and ready to be placed into service, the components or functionality that are being replaced will be abandoned. If this occurs, the remaining net book value of the previously capitalized software development costs will be expensed over the remaining useful life of those components or written off.
An area of continued focus is improving the operational efficiency of the Platform that would promote scale more quickly. Our operational costs consist mainly of third-party vendor costs and SEI personnel. We are investing in the operational infrastructure that will attempt to provide a sustainable operating model that minimizes cost as revenues increase. However, if we are unable to price our services correctly and provide an attractive value proposition for our prospective clients, the incremental rate of revenue and profits may be hampered.
As we progress through the different stages of deployment of the Platform to a broader market, we expect to encounter numerous challenges; however, in our opinion, the Platform promises to provide a significant opportunity to expand our services into new markets that will increase revenues and profits in the long-term. Until we attain a level of revenues that technological and operational scale can be achieved, we expect continued pressure on our operating margins in the Private Banks business segment and an increased level of pressure on our operating margins in the Investment Advisors business segment.
Sensitivity of our revenues and earnings to capital market fluctuations
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. The prevailing capital market conditions during 2013 and 2014 had a net positive impact on our asset-based fees thereby increasing our base revenues. Conversely, prolonged future downturns in the general capital markets could have adverse effects on our revenues and earnings derived from assets under management and administration.

Page 21 of 77



Ending Asset Balances
This table presents ending asset balances of our clients, or of our clients’ customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest.
Ending Asset Balances
 
 
(In millions)
 
As of December 31,
 
 
 
 
 
 
Percent Change
 
 
 
Percent Change
 
 
2014
 
2013
 
 
2012
 
Private Banks:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs (a)
 
$
18,666

 
$
15,472

 
21
 %
 
$
18,862

 
(18
)%
Collective trust fund programs
 
8

 
14

 
(43
)%
 
11

 
27
 %
Liquidity funds
 
5,889

 
5,685

 
4
 %
 
6,008

 
(5
)%
Total assets under management
 
$
24,563

 
$
21,171

 
16
 %
 
$
24,881

 
(15
)%
Client proprietary assets under administration
 
16,741

 
15,272

 
10
 %
 
12,178

 
25
 %
Total assets
 
$
41,304

 
$
36,443

 
13
 %
 
$
37,059

 
(2
)%
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
43,845

 
$
38,574

 
14
 %
 
$
31,220

 
24
 %
Collective trust fund programs
 
9

 
11

 
(18
)%
 
14

 
(21
)%
Liquidity funds
 
3,173

 
2,846

 
11
 %
 
2,514

 
13
 %
Total assets under management
 
$
47,027

 
$
41,431

 
14
 %
 
$
33,748

 
23
 %
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
72,828

 
$
66,548

 
9
 %
 
$
62,160

 
7
 %
Collective trust fund programs
 
95

 
109

 
(13
)%
 
102

 
7
 %
Liquidity funds
 
2,929

 
2,644

 
11
 %
 
2,454

 
8
 %
Total assets under management
 
$
75,852

 
$
69,301

 
9
 %
 
$
64,716

 
7
 %
Investment Managers:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
27

 
$
69

 
(61
)%
 
$
67

 
3
 %
Collective trust fund programs
 
20,833

 
22,377

 
(7
)%
 
16,197

 
38
 %
Liquidity funds
 
946

 
718

 
32
 %
 
408

 
76
 %
Total assets under management
 
$
21,806

 
$
23,164

 
(6
)%
 
$
16,672

 
39
 %
Client proprietary assets under administration
 
355,890

 
311,992

 
14
 %
 
244,671

 
28
 %
Total assets
 
$
377,696

 
$
335,156

 
13
 %
 
$
261,343

 
28
 %
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
736

 
$
619

 
19
 %
 
$
513

 
21
 %
Liquidity funds
 
98

 
46

 
113
 %
 
43

 
7
 %
Total assets under management
 
$
834

 
$
665

 
25
 %
 
$
556

 
20
 %
LSV:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
82,665

 
$
76,189

 
8
 %
 
$
60,947

 
25
 %
Total:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs (a)
 
$
218,767

 
$
197,471

 
11
 %
 
$
173,769

 
14
 %
Collective trust fund programs
 
20,945

 
22,511

 
(7
)%
 
16,324

 
38
 %
Liquidity funds
 
13,035

 
11,939

 
9
 %
 
11,427

 
4
 %
Total assets under management
 
$
252,747

 
$
231,921

 
9
 %
 
$
201,520

 
15
 %
Client proprietary assets under administration
 
372,631

 
327,264

 
14
 %
 
256,849

 
27
 %
Total assets under management and administration
 
$
625,378

 
$
559,185

 
12
 %
 
$
458,369

 
22
 %

(a) Equity and fixed income programs in the Private Banks segment in 2012 includes $7.0 billion in assets related to SEI AK which was sold in the first quarter of 2013 (See Note 15 to the Consolidated Financial Statements).

Page 22 of 77



Average Asset Balances
This table presents average asset balances of our clients, or of our clients’ customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest.
Average Asset Balances
 
 
(In millions)
 
For the Year Ended December 31,
 
 
 
 
 
 
Percent Change
 
 
 
Percent Change
 
 
2014
 
2013
 
 
2012
 
Private Banks:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs (a)
 
$
17,838

 
$
15,188

 
17
 %
 
$
17,434

 
(13
)%
Collective trust fund programs
 
12

 
11

 
9
 %
 
282

 
(96
)%
Liquidity funds
 
5,547

 
5,252

 
6
 %
 
5,332

 
(2
)%
Total assets under management
 
$
23,397

 
$
20,451

 
14
 %
 
$
23,048

 
(11
)%
Client proprietary assets under administration
 
15,648

 
13,626

 
15
 %
 
10,873

 
25
 %
Total assets
 
$
39,045

 
$
34,077

 
15
 %
 
$
33,921

 
 %
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
41,346

 
$
35,290

 
17
 %
 
$
29,611

 
19
 %
Collective trust fund programs
 
12

 
14

 
(14
)%
 
728

 
(98
)%
Liquidity funds
 
2,840

 
2,355

 
21
 %
 
1,970

 
20
 %
Total assets under management
 
$
44,198

 
$
37,659

 
17
 %
 
$
32,309

 
17
 %
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
70,796

 
$
64,003

 
11
 %
 
$
56,584

 
13
 %
Collective trust fund programs
 
108

 
106

 
2
 %
 
312

 
(66
)%
Liquidity funds
 
2,773

 
2,937

 
(6
)%
 
3,415

 
(14
)%
Total assets under management
 
$
73,677

 
$
67,046

 
10
 %
 
$
60,311

 
11
 %
Investment Managers:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
66

 
$
74

 
(11
)%
 
$
63

 
17
 %
Collective trust fund programs
 
21,929

 
18,985

 
16
 %
 
13,873

 
37
 %
Liquidity funds
 
857

 
554

 
55
 %
 
276

 
101
 %
Total assets under management
 
$
22,852

 
$
19,613

 
17
 %
 
$
14,212

 
38
 %
Client proprietary assets under administration
 
338,645

 
286,208

 
18
 %
 
233,024

 
23
 %
Total assets
 
$
361,497

 
$
305,821

 
18
 %
 
$
247,236

 
24
 %
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
671

 
$
577

 
16
 %
 
$
537

 
7
 %
Liquidity funds
 
81

 
33

 
145
 %
 
35

 
(6
)%
Total assets under management
 
$
752

 
$
610

 
23
 %
 
$
572

 
7
 %
LSV:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
 
$
80,440

 
$
68,870

 
17
 %
 
$
57,935

 
19
 %
Total:
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs (a)
 
$
211,157

 
$
184,002

 
15
 %
 
$
162,164

 
13
 %
Collective trust fund programs
 
22,061

 
19,116

 
15
 %
 
15,195

 
26
 %
Liquidity funds
 
12,098

 
11,131

 
9
 %
 
11,028

 
1
 %
Total assets under management
 
$
245,316

 
$
214,249

 
15
 %
 
$
188,387

 
14
 %
Client proprietary assets under administration
 
354,293

 
299,834

 
18
 %
 
243,897

 
23
 %
Total assets under management and administration
 
$
599,609

 
$
514,083

 
17
 %
 
$
432,284

 
19
 %

(a) Equity and fixed income programs in the Private Banks segment in 2012 includes $6.6 billion in average assets related to SEI AK which was sold in the first quarter of 2013 (See Note 15 to the Consolidated Financial Statements).

Page 23 of 77



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. Assets under management and administration also include total assets of our clients or their customers for which we provide administrative services, including client proprietary fund balances for which we provide administration and/or distribution services. All assets presented in the preceding tables 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 year ended 2014 compared to the year ended 2013, and for the year ended 2013 compared to the year ended 2012 are:
Year Ended December 31,
 
2014
 
2013
 
Percent
Change
 
2012
 
Percent
Change
Private Banks:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
441,467

 
$
397,138

 
11
%
 
$
364,788

 
9
 %
Expenses
 
399,620

 
392,399

 
2
%
 
357,001

 
10
 %
Operating profit
 
$
41,847

 
$
4,739

 
NM

 
$
7,787

 
(39
)%
Gain on sale of subsidiary
 
5,582

 
22,112

 
NM

 

 
NM

Total profit
 
$
47,429

 
$
26,851

 
NM

 
$
7,787

 
NM

Operating margin (a)
 
9
%
 
1
%
 
 
 
2
%
 
 
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
Revenues
 
283,811

 
241,252

 
18
%
 
202,703

 
19
 %
Expenses
 
146,500

 
133,962

 
9
%
 
120,146

 
11
 %
Operating profit
 
$
137,311

 
$
107,290

 
28
%
 
$
82,557

 
30
 %
Operating margin
 
48
%
 
44
%
 
 
 
41
%
 
 
Institutional Investors:
 
 
 
 
 
 
 
 
 
 
Revenues
 
284,677

 
257,658

 
10
%
 
227,889

 
13
 %
Expenses
 
140,659

 
133,218

 
6
%
 
116,546

 
14
 %
Operating profit
 
$
144,018

 
$
124,440

 
16
%
 
$
111,343

 
12
 %
Operating margin
 
51
%
 
48
%
 
 
 
49
%
 
 
Investment Managers:
 
 
 
 
 
 
 
 
 
 
Revenues
 
251,310

 
226,081

 
11
%
 
193,484

 
17
 %
Expenses
 
159,176

 
148,977

 
7
%
 
127,525

 
17
 %
Operating profit
 
$
92,134

 
$
77,104

 
19
%
 
$
65,959

 
17
 %
Operating margin
 
37
%
 
34
%
 
 
 
34
%
 
 
Investments in New Businesses:
 
 
 
 
 
 
 
 
 
 
Revenues
 
4,740

 
4,003

 
18
%
 
3,658

 
9
 %
Expenses
 
18,377

 
15,723

 
17
%
 
14,954

 
5
 %
Operating loss
 
$
(13,637
)
 
$
(11,720
)
 
NM

 
$
(11,296
)
 
NM

(a) Percentage determined exclusive of gain from sale of subsidiary (See Note 15 to the Consolidated Financial Statements).
For additional information pertaining to our business segments, see Note 13 to the Consolidated Financial Statements.

Page 24 of 77



Private Banks 
Year Ended December 31,
 
2014
 
2013
 
Percent
Change
 
2012
 
Percent
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
Investment processing and software servicing fees
 
$
283,021

 
$
260,085

 
9
 %
 
$
233,790

 
11
%
Asset management, administration & distribution fees
 
132,427

 
108,792

 
22
 %
 
103,712

 
5
%
Transaction-based and trade execution fees
 
26,019

 
28,261

 
(8
)%
 
27,286

 
4
%
Total revenues
 
$
441,467

 
$
397,138

 
11
 %
 
$
364,788

 
9
%
Revenues increased $44.3 million, or 11 percent, in 2014 compared to the prior year. Revenues during 2014 were primarily affected by:
Increased investment management fees from existing international clients due to higher average assets under management from improved capital markets and increased net cash flows;
Increased fees from the growth in existing client assets processed on the SEI Wealth Platform;
Increased fees earned on our mutual fund trading solution due to an increase in assets processed on the system from new and existing clients; and
$6.0 million in non-recurring professional services fees from a single project recorded in the second quarter 2014 related to investment processing services; partially offset by
Lower recurring investment processing fees due to price reductions provided to existing clients that recontracted for longer periods and client losses.
Revenues increased $32.4 million, or nine percent, in 2013 compared to the prior year. Revenues during 2013 were primarily affected by:
Increased recurring investment processing fees from new and existing investment processing clients;
Increased fees earned on our mutual fund trading solution due to an increase in assets from new and existing clients; and
Increased investment management fees from existing clients due to higher average assets under management from improved capital markets, net of the decrease in assets under management from the sale of SEI AK in the first quarter 2013; partially offset by
Lower recurring investment processing fees due to price reductions provided to existing clients that recontracted for longer periods and client losses.
Operating margins were nine percent in 2014 and one percent in 2013. Operating income increased $37.1 million in 2014 compared to the prior year. Operating income in 2014 was primarily affected by:
An increase in revenues;
Decreased stock-based compensation costs of $7.3 million; partially offset by
Increased direct expenses associated with increased investment management fees from existing international clients;
Increased non-capitalized development costs, mainly personnel and consulting costs, related to the SEI Wealth Platform;
Increased operational costs, mainly salary and consulting costs, for servicing investment processing clients;
Increased third-party expenses associated with clients processed on the SEI Wealth Platform; and
Increased amortization expense related to the SEI Wealth Platform.
Operating margins were one percent in 2013 and two percent in 2012. Operating income decreased $3.0 million, or 39 percent, in 2013 compared to the prior year. Operating income in 2013 was primarily affected by:
Increased direct expenses associated with the increased investment management fees from existing international clients and our mutual fund trading solution;
Increased operational costs, mainly salary, incentive compensation, consulting and outsourcing costs, for servicing new and existing investment processing clients;
Increased stock-based compensation costs of $6.3 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets;
Increased direct expenses associated with the increased investment processing fees; and
Increased amortization expense related to the SEI Wealth Platform; partially offset by
An increase in revenues.

Page 25 of 77



Investment Advisors
Year Ended December 31,
 
2014
 
2013
 
Percent
Change
 
2012
 
Percent
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
Investment management fees-SEI fund programs
 
$
223,371

 
$
191,473

 
17
%
 
$
160,324

 
19
%
Separately managed account fees
 
45,404

 
35,382

 
28
%
 
28,580

 
24
%
Other fees
 
15,036

 
14,397

 
4
%
 
13,799

 
4
%
Total revenues (a)
 
$
283,811

 
$
241,252

 
18
%
 
$
202,703

 
19
%
(a) All amounts are reflected in Asset management, administration and distribution fees except for $2,406, $1,921 and $1,891 in 2014, 2013 and 2012, respectively, which are reflected in Transaction-based and trade execution fees.
Revenues increased $42.6 million, or 18 percent, in 2014 and increased $38.5 million, or 19 percent, in 2013 compared 2012. Revenues during 2014 and 2013 were primarily affected by:
Increased investment management fees and separately managed account program fees from existing clients due to higher average assets under management caused by market appreciation and an increase in net cash flows from new and existing advisors; and
An increase in the average basis points earned on assets due to the increase in average assets under management and product mix; partially offset by
Lower fees earned in 2013 from our collective trust fund offering due to the closing of the SEI Stable Asset Fund at the end of 2012.
Operating margins were 48 percent in 2014 and 44 percent in 2013. Operating income increased $30.0 million, or 28 percent, in 2014 compared to the prior year. Operating income in 2014 was primarily affected by:
An increase in revenues; and
Decreased stock-based compensation costs of $4.2 million; partially offset by
Increased direct expenses associated with increased investment management programs;
Increased non-capitalized development costs, mainly personnel and consulting costs, related to the SEI Wealth Platform; and
Increased amortization expense related to the SEI Wealth Platform.
Operating margins were 44 percent in 2013 and 41 percent in 2012. Operating income increased $24.7 million, or 30 percent, in 2013 compared to the prior year. Operating income in 2013 was primarily affected by:
An increase in revenues; partially offset by
Increased amortization expense relating to the SEI Wealth Platform as well as spending associated with building the necessary functionality and infrastructure for servicing financial institutions and investment advisors in the United States;
Increased personnel costs, mainly salary and incentive compensation; and
Increased stock-based compensation costs of $3.9 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets.
Institutional Investors
Revenues increased $27.0 million, or ten percent, in 2014 and increased $29.8 million, or 13 percent, in 2013 compared to 2012. Revenues during 2014 and 2013 were primarily affected by:
Increased investment management fees from existing clients due to higher average assets under management from market appreciation as well as additional asset funding from existing clients; and
Asset funding from new sales of our retirement and not-for-profit solutions; partially offset by client losses.
Operating margins were 51 percent in 2014 and 48 percent in 2013. Operating income increased $19.6 million, or 16 percent, in 2014 compared to the prior year. Operating income during 2014 was primarily affected by:
An increase in revenues; and
Decreased stock-based compensation costs of $3.9 million; partially offset by
Increased direct expenses associated with higher investment management fees, and
Increased personnel costs, mainly salary and incentive-based compensation expenses.

Page 26 of 77



Operating margins were 48 percent in 2013 and 49 percent in 2012. Operating income increased $13.1 million, or 12 percent, in 2013 compared to the prior year. Operating income during 2013 was primarily affected by:
An increase in revenues; partially offset by
Increased direct expenses associated with higher investment management fees;
Increased stock-based compensation costs of $3.7 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets; and
Increased other personnel costs associated with investment management operations.
Investment Managers
Revenues increased $25.2 million, or 11 percent, in 2014 and increased $32.6 million, or 17 percent, in 2013 compared to 2012. Revenues during 2014 and 2013 were primarily affected by:
Net positive cash flows from existing clients due to new funding along with higher valuations from improved capital markets;
Increased accounts from our separately managed account program from new and existing clients in 2013; and
Positive cash flows from new clients; partially offset by client losses.
Operating margins were 37 percent in 2014 and 2013. Operating income increased $15.0 million, or 19 percent, in 2014 compared to the prior year. Operating income during 2014 was primarily affected by:
An increase in revenues; and
Decreased stock-based compensation costs of $4.5 million; partially offset by
Increased personnel expenses, technology and other operational costs to service new and existing clients.
Operating margins were 34 percent in 2013 and 2012. Operating income increased $11.1 million, or 17 percent, in 2013 compared to the prior year. Operating income during 2013 was primarily affected by:
An increase in revenues; partially offset by
Increased personnel expenses and other operational costs to service new clients of our hedge fund and separately managed accounts solutions;
Increased stock-based compensation costs of $4.2 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets; and
Increased investment spending for outsourced technology service providers.
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 $48.9 million, $53.7 million and $45.8 million in 2014, 2013 and 2012, respectively. The decrease in corporate overhead expenses in 2014 was primarily due to decreased stock-based compensation costs of $4.2 million. The increase in 2013 was primarily due to increased stock-based compensation costs of $3.8 million primarily due to the change in management's estimate of the timing of the achievement of stock option vesting targets, other personnel-related costs and higher costs related to regulatory and compliance matters.
Other income and expense items
Other income and expense items on the accompanying Consolidated Statements of Operations consist of:
Year Ended December 31,
 
2014
 
2013
 
2012
Net gain from investments
 
$
614

 
$
659

 
$
14,067

Interest and dividend income
 
3,354

 
3,248

 
5,696

Interest expense
 
(458
)
 
(535
)
 
(504
)
Equity in earnings of unconsolidated affiliates
 
127,786

 
118,076

 
98,671

Gain on sale of subsidiary
 
5,582

 
22,112

 

Other income
 

 
43,429

 

Total other income and expense items, net
 
$
136,878

 
$
186,989

 
$
117,930


Page 27 of 77



Net gain from investments
During 2012, we recognized net gains of $13.2 million from Structured Investment Vehicles (SIV) securities. Of the net gains recognized during 2012, $6.8 million resulted from cash payments received from the SIV securities and $1.1 million was from a net increase in fair value. In November 2012, we sold our remaining SIV security, the Gryphon senior note, and recognized a gain of $5.3 million.
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates primarily includes our ownership in LSV. At December 31, 2014, our interest in LSV was approximately 39.3 percent. Our proportionate share in the earnings of LSV was $140.2 million in 2014 as compared to $119.0 million in 2013, an increase of 18 percent. The increase in our earnings was primarily due to increased assets under management of LSV from existing clients due to improved capital markets and an increase in performance fees. LSV’s average assets under management increased $11.6 billion to $80.4 billion during 2014 as compared to $68.9 billion during 2013, an increase of 17 percent. Our earnings from LSV, however, were negatively impacted by a decrease in our ownership interest in April 2013 from approximately 39.8 percent to 39.3 percent. In 2013, our proportionate share in the earnings of LSV increased to $119.0 million from $100.0 million in 2012, an increase of 19 percent. The increase in 2013 was also primarily due to increased assets from new and existing clients due to market appreciation and increased performance fees.
Equity in earnings of unconsolidated affiliates also includes our proportionate share in the losses of Gao Fu, a wealth services firm based in China. Our investment in Gao Fu resulted from purchases of common stock between 2011 and 2013 and funding through two convertible loan agreements in 2014. The first loan agreement contained specific revenue and net income targets for Gao Fu to achieve by December 31, 2014. In December 2014, a review of the financial statements of Gao Fu indicated that the achievement of such performance targets as stipulated in the first loan agreement was unlikely. As a result, we wrote down our investment in Gao Fu to its net realizable value based on our ownership percentage of the remaining net assets of the firm and recognized an impairment charge of $11.3 million during the fourth quarter 2014. This charge is reflected in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statements of Operations (See Note 2 to the Consolidated Financial Statements for more information).
Gain on sale of subsidiary
On July 31, 2012, we entered into a agreement to sell all of our ownership interest in SEI AK and completed the sale on March 28, 2013. We recorded gains from the sale of $5.6 million and $22.1 million during 2014 and 2013, respectively. The gain recorded in 2014 was the result of the first in a series of three annual payments related to the contingent purchase price we received from the sale. These gains are included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations (See Note 15 to the Consolidated Financial Statements for more information).
Other income
On April 24, 2013, we entered into a Settlement Agreement with respect to litigation captioned Abu Dhabi Commercial Bank, et. al. v. Morgan Stanley & Co., Incorporated, et. al., related to the purchase of Cheyne Finance LLC, a SIV security. In accordance with the Settlement Agreement, we received a cash settlement payment after fees and expenses of $43.4 million during 2013 which is included in Other income on the accompanying Consolidated Statement of Operations (See Note 16 to the Consolidated Financial Statements for more information).
Income Taxes
Our effective tax rate was 34.9 percent in 2014, 33.7 percent in 2013, and 36.9 percent in 2012. Our effective tax rate is affected by recurring items, such as tax rates in various states and foreign jurisdictions and the relative amount of income we earned in those jurisdictions. These amounts have been fairly consistent in prior years. In 2014, there was an increase in the taxable income earned in certain foreign jurisdictions which was taxed at a lower rate or was offset by the foreign tax credit.

Page 28 of 77



Our effective tax rate is also affected by discrete items that may occur in any given year, but are not consistent from year to year. Below are the most significant recurring and discrete items (See Note 12 to the Consolidated Financial Statements for more information):
2014
There was a reduction in our effective rate due to more pre-tax income being taxed in foreign jurisdictions with lower effective tax rates or offset by a foreign tax credit;
There was a reduction in our state effective rate as a result of Pennsylvania Tax Law changes that became effective January 1, 2014. The 2013 tax rate was benefited by a one-time reduction in deferred taxes; and
There was a reduction in our effective rate due to the reinstatement of the Research and Development Tax Credit. The tax credit was retroactively extended for 2014 through the Tax Increase Prevention Law, signed into law on December 19, 2014. The 2013 tax rate reflected the Research and Development Tax Credit for two years.
2013
There was a reduction in our effective rate that was the result of Pennsylvania Tax Law changes enacted on July 18, 2013 which became effective on January 1, 2014. These changes have reduced the deferred tax liability which had accumulated during prior years. In accordance with the tax accounting rules, the effect of the law change is recorded in the year in which the law was signed. The primary change that affects SEI results from the reduction of net income apportioned to the State of Pennsylvania. The bill adopts “market-based” sourcing for apportionment. This method apportions sales to the state where the benefits are being derived by the customer. The current method apportions sales of services to the state where the cost was incurred to perform those services; and
There was a reduction in our effective rate from the reinstatement of the Research and Development Tax Credit. The tax credit was reinstated retroactively from January 1, 2012 through December 31, 2013 by The American Taxpayer Relief Act of 2012 (the Act), signed into law on January 2, 2013. The accounting rules require the determination of current and deferred taxes be based upon the provisions of the enacted tax law as of the balance sheet date. Since the Act was not signed into law until January 2, 2013, the effect was not reflected in the tax provision for 2012. The 2013 effective tax rate reflects a Research and Development Tax Credit for both 2012 and 2013.
2012
There was an increase in our effective tax rate as a result of the sale of SEI AK because we no longer considered the undistributed earnings of SEI AK to be indefinitely reinvested and, therefore, accrued U.S. deferred taxes on the cumulative undistributed earnings;
There was an increase in our effective tax rate as a result of the expiration of the Research and Development Tax Credit; and
There was a reduction in our effective tax rate as a result of state tax planning.
Our 2015 effective tax rate could be affected by the expiration of the Research and Development Tax Credit and taxation provisions of the budget proposed by President Obama for fiscal year 2016, that begins on October 1, 2015, if enacted into law.
Stock-Based Compensation
During 2014, 2013 and 2012, we recognized approximately $13.5 million, $37.9 million and $15.7 million, respectively, in stock-based compensation expense. All of our stock options have performance-based vesting provisions that tie vesting of the options to our financial performance and do not contain any time-based vesting provisions. The amount of stock-based compensation expense recognized is based upon an estimate of when the earnings per share targets may be achieved. If our estimate proves to be inaccurate, the amount of stock-based compensation expense could be accelerated, spread out over a longer period, or reversed. This may cause volatility in the recognition of stock-based compensation expense and materially affect our earnings.
During 2013, we revised our estimate of when certain vesting targets were expected to be achieved. This change in estimate resulted in an increase of $19.6 million in stock-based compensation expense. The change in our estimate resulted from the positive earnings impacts from the unexpected cash payment received for a litigation settlement and the gain recognized from the sale of SEI AK during 2013. These non-recurring events, which were not part of our normal business operations, had a significant positive impact on our earnings and were not initially incorporated into our estimate made at December 31, 2012 for the achievement of our option vesting targets.
As of December 31, 2014, there was approximately $45.1 million of unrecognized compensation cost related to unvested employee stock options that we expect will vest and is being amortized.
Fair Value Measurements
The fair value of our financial assets and liabilities is determined in accordance with the fair value hierarchy. The fair value of our financial assets are determined using Level 1 or Level 2 inputs and consist mainly of investments in equities or mutual

Page 29 of 77



funds that are quoted daily and GNMA and other U.S. government agency securities that are single issuer pools that are valued based on current market data of similar assets. We did not have any financial liabilities at December 31, 2014 or 2013 (See Note 5 to the Consolidated Financial Statements for more information).
Regulatory Matters
Like many firms operating within the financial services industry, we are experiencing a challenging regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry; the introduction and implementation of new solutions 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.
During the last twelve months, SEI and some of our regulated subsidiaries have undergone or been scheduled to undergo a range of periodic or thematic reviews or examinations by more than eight regulatory authorities around the world, including the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Financial Conduct Authority of the United Kingdom, the Central Bank of Ireland and others. These examinations typically result in the identification of matters or practices to be addressed by us or our subsidiaries and, in certain circumstances, the regulatory authorities could require remediation activities or pursue enforcement proceedings against us or our subsidiaries. As described under the caption “Regulatory Considerations” in Item 1 of this report, 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 examinations and reviews and of complying with new or modified regulations, as well as the potential financial costs and potential reputational impact against us of any enforcement proceedings that might result, is uncertain but could have a material adverse impact on our operating results or financial position.
Liquidity and Capital Resources
Year Ended December 31,
 
2014
 
2013
 
2012
Net cash provided by operating activities
 
$
374,803

 
$
351,224

 
$
257,490

Net cash (used in) provided by investing activities
 
(53,385
)
 
(62,413
)
 
16,627

Net cash used in financing activities
 
(224,750
)
 
(162,785
)
 
(242,856
)
Effect of exchange rate changes on cash and cash equivalents
 
(7,495
)
 

 

Net increase in cash and cash equivalents
 
89,173

 
126,026

 
31,261

Cash and cash equivalents, beginning of year
 
578,273

 
452,247

 
420,986

Cash and cash equivalents, end of year
 
$
667,446

 
$
578,273

 
$
452,247

Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity for additional borrowing. At December 31, 2014, our unused sources of liquidity consisted of cash and cash equivalents and the full amount available under our credit facility.
Our credit facility provides for borrowings of up to $300.0 million and is scheduled to expire in February 2017 (See Note 7 to the Consolidated Financial Statements). 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, or to incur liens, 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. We currently have no borrowings under our credit facility.
The majority of our excess cash reserves are primarily placed in accounts located in the United States that invest 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 January 30, 2015, the amount of cash and cash equivalents considered free and immediately accessible for other general corporate purposes was $368.7 million.
Our cash and cash equivalents include accounts managed by our subsidiaries and minority-owned 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. Also, some of our foreign subsidiaries may have excess cash reserves which are considered to be undistributed earnings and indefinitely reinvested. Upon distribution of these earnings, in the form of dividends or otherwise, we would be immediately subject to both U.S. and foreign withholding taxes which would

Page 30 of 77



reduce the amount we would ultimately realize. We do not include accounts of our foreign subsidiaries in our calculation of free and immediately accessible cash for other general corporate purposes.
Cash flows from operations increased $23.6 million in 2014 compared to 2013 due to the increase in our net income and the non-cash adjustments related to the gains from the sale of SEI AK and deferred tax expense. These increases were offset by the non-cash adjustment for stock-based compensation and the net change in our working capital accounts (See Note 15 to the Consolidated Financial Statements for more information regarding the sale of SEI AK).
Cash flows from operations increased $93.7 million in 2013 compared to 2012 primarily due to an increase in our earnings, the cash payment of $43.4 million received pertaining to a litigation settlement and an additional quarterly partnership distribution payment received from LSV due to a change in the payment schedule (See Note 16 to the Consolidated Financial Statements for more information regarding the litigation settlement).
Cash flows from investing activities increased $9.0 million in 2014 compared to 2013 and decreased $79.0 million in 2013 compared to 2012. Net cash used in investing activities includes:
Purchases, sales and maturities of marketable securities. Our purchases, sales and maturities of marketable securities during 2014, 2013 and 2012 were as follows:
 
 
2014
 
2013
 
2012
Purchases
 
$
(56,754
)
 
$
(57,560
)
 
$
(33,662
)
Sales and maturities
 
63,434

 
47,574

 
108,182

Net investing activities from marketable securities
 
$
6,680

 
$
(9,986
)
 
$
74,520

Marketable securities purchased generally consisted of additional GNMA securities to satisfy applicable regulatory requirements of SPTC, investments in short-term U.S. government agency and commercial paper securities through SIDCO's cash management program and investments for the start-up of new investment products. Proceeds received from sales and maturities primarily included sales and principal prepayments related to the GNMA securities owned by SPTC, maturities of short-term securities owned by SIDCO and, in 2012, the sale of our remaining SIV security.
The capitalization of costs incurred in developing computer software. We capitalized $34.9 million, $39.5 million and $31.0 million of software development costs in 2014, 2013 and 2012, respectively. Amounts capitalized in each year include costs for significant enhancements and upgrades for the expanded functionality of the SEI Wealth Platform. Included in the amount for 2013 is a one-time contractual payment of $8.8 million to exercise a conversion option in lieu of periodic fee payments pertaining to a software license for functionality utilized by the Platform.
Capital expenditures. Our capital expenditures in 2014, 2013 and 2012 primarily include purchased software and equipment for our data center operations. Our expenditures in 2014 also include $8.5 million related to the construction of an additional building at our corporate headquarters which was completed during the third quarter. Our expenditures in 2012 include a purchase of $10.0 million for specific front office client management technology. In 2015, we intend to relocate our London operations to a new facility. The total cost of the improvements to this facility is estimated to be at least $13.2 million and is expected to to be completed during the third quarter of 2015.
The sale of our subsidiary. The sale of SEI AK was completed during the first quarter of 2013. Prior to the transaction, cash and cash equivalents held in the accounts of SEI AK were not considered free and immediately available. As a result of the sale, the net cash proceeds received significantly increased our amount of cash considered free and immediately accessible for other general corporate purposes. The net effect of the cash received from the sale of SEI AK and the transfer of cash balances to the owners is reflected in Sale of subsidiary, net of cash transferred. Additional information pertaining to the sale is presented in Note 15 to the Consolidated Financial Statements.
Cash flows from financing activities decreased $62.0 million in 2014 compared to 2013 and increased $80.1 million in 2013 compared to 2012. 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. The following table lists information regarding repurchases of our common stock during 2014, 2013 and 2012:
Year
 
Total Number of
Shares  Repurchased
 
Average Price
Paid per Share
 
Total Cost
2014
 
7,888,000

 
$
35.29

 
$
278,357

2013
 
6,789,000

 
30.92

 
209,942

2012
 
7,528,000

 
20.62

 
155,264


Page 31 of 77



Proceeds from the issuance of our common stock. We received $104.9 million, $66.4 million and $49.4 million in proceeds from the issuance of our common stock during 2014, 2013 and 2012, respectively. The increase in proceeds in 2014 and 2013 is primarily attributable to higher levels of stock option exercise activity.
Dividend payments. Our cash dividends paid during 2014, 2013 and 2012 were as follows:
Year
 
Cash Dividends Paid
 
Cash Dividends
Paid per Share
2014
 
$
74,294

 
$
0.44

2013
 
34,400

 
0.20

2012
 
135,335

 
0.78

The decrease in dividends paid in 2013 was due to a special cash dividend of $0.32 per share paid in 2012 and the payment date of the regular semi-annual dividend declared in December 2012 occurring in the calendar year as compared to the payment date of the semi-annual dividend declared in December 2013 which occurred in January of 2014.
Our Board of Directors declared a semi-annual cash dividend of $0.24 per share on December 9, 2014. The dividend was paid on January 6, 2015 for a total of $40.2 million.
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.
Significant Arrangement
On October 1, 2012, we provided an unsecured guaranty of the obligations of LSV Employee Group III to The PrivateBank and Trust Company and certain other lenders. We entered into this agreement in order to facilitate the acquisition of certain partnership interests of LSV by LSV Employee Group III. Additional information pertaining to the agreement is presented in Note 2 to the Consolidated Financial Statements.
Contractual Obligations and Contingent Obligations
As of December 31, 2014, the Company is obligated to make payments in connection with its lines of credit, operating leases, maintenance contracts and other commitments in the amounts listed below. The Company has no unrecorded obligations other than the items noted in the following table: 
 
 
Total
 
2015
 
2016
 
2017 to 2018
 
2019 and thereafter
Line of credit (a)
 
$
950