Al West took an idea he developed at The Wharton School of the University of Pennsylvania in the 1960s - to develop a loan officer training program for banks - and turned it into a multibillion-dollar money management firm. SEI Investments Inc. has evolved from a back-office service provider to an investment consultant to a manager-of-managers asset management firm. Mr. West has become one of the most successful - and wealthiest - CEOs in the business. So what's next? In an interview with P&I's Dave Kovaleski, Mr. West talks about his business and the industry, past, present and future.
Q What were your first ambitions?
A I toyed with the idea of being a test pilot. (Chuck) Yeager was my hero when most people didn't know who he was. He had just broken the speed of sound. Then my eyes went bad my senior year (at Georgia Institute of Technology), so I didn't enter the Air Force like I thought I was going to. I had to make a career adjustment, and I went to Wharton.
Q How did you establish SEI?
A Coming out of Wharton, I really wanted to start a business. (The business) came out of the Wharton business simulation game where students ran a company and competed against one another. We took that to industry. We built a system to train bankers how to lend money and run a loan portfolio. We got Morgan Guaranty to invest in it and about 50 of the top 60 banks to use it. Then we built a system to automate the back room of the trust departments, using the same technology we had used for training simulators.
Q How has the company evolved?
A I call it an edge-out strategy. Rather than go jump into a whole new business, we get into something that's very related. Our first move away from back-office computing and processing for trust departments was into cash mutual funds. We really liked the investment business and we were doing all the computing for the investment business, so we bought A.G. Becker's fund evaluation division, thinking that would be a good entree. It gave us a certain amount of credibility in terms of money management. It also gave us a whole lot of pension plans to talk to. From there, we turned the performance measurement game into more of a consulting game, but we weren't crazy about that as a business. We thought we should be more accountable for the results, so what we did is take everything we learned from telling other people what to do and we applied it ourselves.
Q What's the next evolution?
AWe are helping people with their full retirement and we have for some time been working on the integration of defined benefit and defined contribution plans. There's a ton of companies out there that have both. You shouldn't treat them separately because the employees who are getting both of them would kind of like them together.
A lot of people have taken DC and made that their No. 1 program because it's cheaper. But it also has two problems: You don't really provide a retirement, and I think employees see that; and how much does that actually buy you in terms of retirement benefit? If Washington were to make a few changes and make some of these things more portable, I think we'd end up with kind of a hybrid between DB and DC.
Q How will you expand the manager-of-managers business?
AWe're expanding where most people have, particularly into the foundation market and into private equity. Private equity went through the same boom as the stock market, but just like the market, it's a relative bargain right now. There's a lot more interest in hedging strategies. There are an awful lot of companies that have global plans; that needs an awful lot of sorting out as they make sure they're making the right hires across the world. There's plenty for us to work on.
Q How has the bear market affected your business?
AWe've done a lot of focusing. When you're roaring ahead, it's a little harder to focus. Once the market turned down, we shifted efforts. If the markets would just flatten out, we'd be OK. If it continues, we're going to lose more revenue. We've been bringing in new clients and new assets during this period of time, but not as fast as the market was taking it away.
Our investment answer is still outsourcing. (Managing money) looks like it's a little harder to do than it looked in the bull market. I think more people understand now it's not so easy, and I think coming out of this, outsourcing will benefit from that - and if it does, we'll benefit as well.
Q Have you had any cutbacks?
ABack in the early '90s - when we reinvented the company, more or less - we really started outsourcing a lot, using outside people rather than company people, and the people we hired inside the company are generally key to the client value chain. So when we did our focusing the last couple of years, we're cutting a lot of external people that we've outsourced to ... so won't have to cut employees. But we didn't totally escape; we've terminated about 75 employees up to this point. But it wasn't a wholesale cutback; it was in certain areas. If the markets continue down we'll lose the revenue and we'll have to continue to focus and adjust, but we'll do anything possible to avoid (layoffs).
Q Does your wealth make you complacent?
AThat's not why you do it - that's a total byproduct. You really do it because you're building something. We're doing some very good things for our clients and it's challenging as heck, so I'm fully engaged, and I really don't want to not be engaged. You've got your family, you've got your work, and I've added a decent amount of charity with that. I'm fully employed, and I like it.
Q Any changes on the horizon?
AWe've got new initiatives in every business, but some of these aren't baked yet. We have looked hard over these last two, three years at reloading and taking a long-term view. We are going global, and Europe is doing very well; that's certainly been a new initiative. Our alternative investment program is a new initiative. As I look around, we've got something new in every area, and we're very close to some decent-sized announcements in most of them.
Q What are your outside interests?
AI'm really big into the idea of learning vs. education. I've given a decent amount of money to a few schools that are trying to change the way people are taught, because people learn differently than they're taught currently. I was one of those that hated classes; I learned other ways than in the class. That's one of my passions. Also, I've got a son that has some unique problems; a cross between mental illness and addiction, which the world doesn't treat very well. He's doing well, but I've started a charity - WestBridge - to take some of what's been learned and actually apply it.