OAKS, Pa. - With the pending sale of its consulting arm, SEI Investments is making yet another break with the past as it continues to reinvent itself.
SEI Capital Resources, the consulting unit, is in line to be sold to several partners in a Houston venture capital firm, Notre Capital Ventures II L.L.C., and to William Nicholson, senior vice president and head of the asset consulting group at Donaldson, Lufkin and Jenrette Securities Corp., New York. Mr. Nicholson will leave DLJ and become chief executive of the new company.
Terms of the sale were not disclosed. The unit, which will be renamed at a later date, will continue to have headquarters in Chicago, where 75 of 100 employees work. The transaction is expected to close this month.
The consulting unit had been on the block for nearly two years because SEI Investments (formerly SEI Corp.) no longer wanted to be in that business.
When SEI moved into spacious, specially designed offices in Oaks, Pa., it left its consulting division employees behind in the old Wayne, Pa., office until a buyer could be found.
The new offices in Oaks have few dividing walls, few private offices, no cubicles. It is an open-air collection of desk, chairs and cabinets. One wall is an electronic stock market board.
During the time it was on the market, SEI Capital lost some clients; the total amount of assets managed by its clients dropped from $400 billion to $300 billion. Mr. Nicholson said the new firm will win those clients back as well as gain new clients.
The business the new SEI clearly wants to be in is money management. SEI oversees nearly $30 billion from 90 clients, all managed by 26 outside money managers.
The future of investment management hinges on a firm having multiproduct, multimarket expertise, said Ed Loughlin, president of the SEI asset management group.
"We had to redefine plan management. A single firm can't have expertise in all the asset classes. You can outsource it to us and we'll bring it all to you and be the fiduciary for the plan and bear some responsibility," Mr. Loughlin said.
SEI began its quest for a new purpose several years ago, in part to position itself for the less-than-favorable economic climate SEI leaders expect once the prolonged bull market ends.
More than a dozen new clients have been won so far this year, including Sonoco Products Co. of Hartsville, S.C., with $200 million in defined benefit assets, and IMO Industries of Lawrenceville, N.J., with $250 million in defined benefit and defined contribution assets.
It sells its services directly to middle-market institutional investors, as well as through intermediaries. The goal is to reach high-net worth individuals and smaller institutional investors.
"We think there is an emerging trend here. The world has gotten more complex and there are new assets and asset types coming out all the time. The responsibilities of trustees continue to increase and they have less time to deal with it. We can provide all the services they need," Mr. Loughlin said.
SEI's previous focus was investment consulting and technology. The company was founded in 1968. It moved into asset management in 1981, using outside managers.
The company went public in 1982, then acquired the pension consulting division of Becker Warburg Paribas Inc. The Becker unit became SEI Capital.
But when SEI refocused, it couldn't find a fit for SEI Capital. SEI Capital was considered, for bookkeeping purposes, a discontinued operation in May 1995.
SEI's current strategy looks like this:
Use technology to provide oversight of managers and watch asset allocation and possible style deviations.
Use specialist managers to reduce volatility and deliver more consistent returns; build a portfolio fully diversified by asset class on a global basis to generate superior alpha.
Use an independent provider whose goals are aligned with those of the plan sponsor and build an objective relationship with no ownership or business ties.
SEI offers client service in three areas: advisory; investment management; and administrative.
Advisory comes closest to the traditional consulting operation. It includes asset-liability analysis, asset allocation study, investment policy planning, financial planning and coordination with the actuary.
Investment management includes portfolio structure, manager selection, monitoring and replacement, portfolio rebalancing, research/new ideas and trading cost analysis.
Administrative service includes trustee, custody, benefit payments, record keeping, participant statements and liquidation services.
SEI has a stable of 26 money managers in large- and small-cap growth and value, fixed income and international and emerging markets equities.
SEI rebalances monthly, Mr. Loughlin said. Manager fees are based on asset class, and clients are charged an asset-based fee using a tiered system.
Equity managers are: Alliance Capital Management L.P., IDS Advisory Group, and Provident Investment Counsel Inc. for large-capitalization growth; Pacific Alliance Capital Management, Mellon Equity Associates, LSV Asset Management, large-cap value; Nicholas-Applegate Capital Management, Wall Street Associates, Furman Selz Capital Management L.L.C., First of America Investment Corp., for small-cap growth; and 1838 Investment Advisors L.P., Boston Partners Asset Management L.P., LSV Asset Management, for small-cap value.
For international equity, the managers are: Acadian Asset Management, Lazard Freres Asset Management, Seligman Henderson Co., Farrell-Wako Global Investment Management, Yamaichi International Capital Management Inc.. For emerging markets equity, managers are Montgomery Asset Management L.P., Coronation Asset Management, Parametric Portfolio Associates and Yamaichi International for emerging markets.
For fixed income, the firm uses Western Asset Management, BlackRock Financial Management Inc., Firstar Investment Research & Management Co., Strategic Fixed Income, BEA Associates and Salomon Brothers Asset Management.
