OAKS, Pa. — A modest investment in the 1994 startup of LSV Asset Management has been buoying SEI Investments' profits just as heavy spending on new strategies — which executives promise will "transform" the company and fuel future profits — is depressing core earnings growth.
The payoff could start coming through over the next year or two, but for now, the investment program SEI launched about a year ago remains more of a cost than a benefit. The Oaks, Pa.-based provider of outsourcing and multimanager investment services to financial institutions, registered investment advisers and corporate pension funds announced Feb. 1 that income before interest and taxes edged up only 1.2% for 2005, to $212 million.
SEI's new investments have been aimed at positioning the company to win more non-U.S. business. "We strongly believe the opportunities for outsourcing in the private bank space are enormous globally, and our current platform isn't equipped for non-U.S. activity on a large scale," said CFO Dennis J. McGonigle in a telephone interview. The "heavy build" period should continue "for the better part of this year," he said.
Investment — the bulk of which is aimed at developing a new global platform to be launched in Europe later this year — helped suppress profits in three of SEI's five business segments that together accounted for more than 60% of revenue: private banking and trust outsourcing, new businesses and money manager outsourcing.
Even so, net income for the year rose a healthy 11%, largely because of the contribution from SEI's 43% stake in LSV, which soared 64% for 2005 to $75 million. LSV's assets under management surged $16.4 billion, 46%, to $51.8 billion for the year.