SEI Investments Earnings Call Highlights Growth Amid Volatility

SEI Investments ((SEIC)) has held its Q4 earnings call. Read on for the main highlights of the call.

SEI Investments Delivers Strong Earnings and Strategic Progress Despite One-Off Headwinds

SEI Investments’ latest earnings call painted a largely upbeat picture, with management emphasizing record-level earnings power, broad-based revenue and margin expansion, and robust sales momentum across key franchises. While the quarter included several one-time or transitional charges—such as severance, M&A costs, client losses in the UK, and ongoing mutual fund outflows—executives framed these as temporary offsets to a strengthening core business supported by a healthy pipeline, solid balance sheet, and continued commitment to returning capital to shareholders.

Record EPS Underscores Earnings Power

SEI reported fourth-quarter EPS of $1.38, with GAAP earnings up roughly 16% year over year and 6% sequentially. Management highlighted that unusual items—primarily about $20 million in severance and M&A-related costs—reduced EPS by approximately $0.08. Excluding these items, Q4 would have represented an all-time record, reinforcing what executives described as a trajectory toward sustained double-digit earnings growth into 2025. The results underscore the company’s ability to grow profitably even while absorbing restructuring and investment-related costs.

Revenue Growth and Margins Improve Across the Board

Revenue growth and operating margin expansion were broad-based across nearly all business segments, reflecting both higher volumes and operational efficiencies. For the full year, SEI expanded its operating margin by more than one percentage point compared with the prior year. Management noted that consolidated margins would have been materially higher if not for the roughly $20 million in elevated corporate overhead tied to severance and M&A activity. The message to investors was that underlying profitability is stronger than headline figures imply, with cost discipline and scale benefits starting to show through.

Private Banking Leads a Standout Year for Sales

Sales activity was a major highlight. SEI posted $44 million in total Q4 sales events, one of the strongest quarterly tallies in its history, capping what management called its best year ever for sales events. Private banking was the star performer, contributing $28 million in net sales events in the quarter, powered by two major mandates. Notably, SEI secured its second SaaS client on the SEI Wealth Platform (SWP), reinforcing the appeal of its technology and outsourcing model in private banking. These wins support multi-year, recurring revenue streams and further embed SEI in clients’ core operations.

IMS Momentum and Alternative Manager Wins

The Investment Management Services (IMS) business delivered $20 million in net sales events during Q4, with more than two-thirds of that stemming from U.S.-based alternative managers. Management emphasized that this reflects growing acceptance of SEI’s outsourced operating platform within the alternatives ecosystem. The pipeline with large alternative managers remains strong, and executives flagged expectations for additional meaningful mandates to be announced around April 2026. This positions IMS as a key growth engine as more asset managers look to scale efficiently through outsourcing.

Adviser Segment Sees Best Inflows in Over a Decade

SEI’s adviser business posted its strongest net inflow year in more than ten years, signaling renewed momentum in that channel. The platform added roughly $2 billion of net new assets through its tax management and overlay capabilities, underscoring adviser demand for value-added portfolio tools. SEI also reported over $1 billion in net inflows across two ETFs, highlighting growing adoption of its ETF offerings. These flows help offset industry-wide pressures in traditional mutual funds and support fee-based, recurring revenue growth.

AUA/AUM Growth and Strong LSV Contribution

Assets under administration (AUA) grew about 3%, aided by both new wins and favorable markets, while assets under management (AUM) climbed roughly 2% as market appreciation offset modest outflows. SEI’s LSV asset management affiliate delivered a particularly strong quarter, with LSV AUM up about 3.5% from Q3 on the back of solid investment performance. LSV generated $22 million in performance fees in the quarter, with SEI’s share materially higher than a year ago by more than $3 million. These performance fees provided a notable boost to earnings, though management cautioned that this contribution is seasonal and typically peaks in the fourth quarter.

Stratos Partnership Expands Adviser Reach

SEI completed the first close of its Stratos partnership in Q4, marking an important strategic milestone aimed at deepening its presence in the adviser channel. While the short consolidation window meant only modest financial contribution in the quarter—around $5 million of revenue and less than $1 million of operating income—the partnership is intended to enhance SEI’s adviser-centric capabilities and expand distribution reach over time. Integration and roll-up activities are ongoing, and the real financial impact is expected to become more visible in subsequent quarters.

Capital Returns Supported by a Strong Balance Sheet

Capital allocation remained shareholder-friendly. SEI repurchased $101 million of stock in Q4, bringing full-year buybacks to $616 million—nearly 6% of shares outstanding in 2024. The company ended the year with approximately $400 million in cash and no debt, providing substantial financial flexibility. Management reaffirmed its intent to return 90–100% of free cash flow to shareholders, positioning buybacks and dividends as core components of the investment case alongside organic growth.

Strategic Tech Investments and Automation Push

Management highlighted ongoing investment in product expansion and technology, with initiatives spanning ETFs, separately managed accounts (SMAs), model portfolios, and select alternative strategies. SEI is also investing in platform-level IMS capabilities designed to increase scalability and client stickiness. A notable move in Q4 was a strategic investment in “the band,” described as an AI-native onboarding operating system intended to streamline client onboarding and reduce unit costs. These efforts aim to reinforce SEI’s positioning as a technology-enabled solutions provider, not just a traditional asset manager or administrator.

One-Time Charges Drive Elevated Overhead

Fourth-quarter results were weighed down by roughly $20 million of elevated corporate overhead, primarily related to severance and M&A fees. These items cut EPS by about $0.08. A targeted reduction in force conducted in December affected roughly 3% of the global workforce and contributed to the severance charges. Management portrayed the restructuring as a step to realign resources with strategic priorities, emphasizing that these costs are nonrecurring while the savings will support future margin expansion and reinvestment.

Accrual Adjustments Add Volatility

Executives acknowledged that some accounting accrual adjustments made Q4 results lumpier than usual. In the IMS segment, a roughly $3 million revenue accrual benefit boosted quarterly revenue, alongside other accrual true-ups that added noise to quarter-to-quarter comparisons. Management reminded investors that large professional services engagements can cause variability and should not be assumed to represent a steady run rate. The message was to look through these short-term swings to the underlying trajectory.

Institutional Losses and Mutual Fund Outflows Persist

The institutional segment faced negative sales events in the quarter, primarily due to client losses in the UK. At the same time, SEI’s asset management business continues to wrestle with industry-wide mutual fund outflows, which diluted some of the positive impact from adviser and ETF inflows. Management framed these headwinds as structural pressures affecting the broader market rather than company-specific issues, noting that growth in solutions, ETFs, and advisory channels is helping to offset the drag from traditional mutual fund products.

Seasonal and Nonrepeatable LSV Tailwinds

While LSV’s performance fees and related gains were a notable positive in Q4, management stressed their seasonal and nonrepeatable nature. LSV fees are historically highest in the fourth quarter and lowest in the first quarter, making Q4 an unusually strong period. The quarter also included a $4 million gain related to variable interest entity (VIE) accounting. Investors were cautioned not to extrapolate this level of performance fees and gains into future quarters, as they will contribute to earnings lumpiness.

Higher Near-Term Expenses to Support Long-Term Growth

SEI is planning a near-term step-up in expenses as it accelerates hiring and brings large recent investments into service. Depreciation and amortization are expected to rise next quarter, and ongoing recruitment is aimed at supporting the strong sales pipeline and new client wins. Management acknowledged that these moves may compress margins in the short term but argued they are necessary to sustain long-term growth and enhance the company’s competitive positioning.

Stratos Financial Contribution Still to Come

Despite its strategic importance, the Stratos transaction had only a limited financial impact in Q4 due to the late closing date. With just a brief period of consolidation, the contribution to revenue and operating income was modest. Management indicated that as integration continues and roll-ups are completed, Stratos should deliver a more meaningful financial contribution, particularly in broadening SEI’s adviser relationships and distribution capabilities.

Sales Variability and Guidance Caution

Management repeatedly warned investors about the inherent variability of sales events, particularly in professional services and large mandates. Q4’s strong sales results, while encouraging, are not considered a baseline that can simply be projected forward. Without offering formal earnings guidance, executives encouraged the market to focus on multi-quarter trends rather than single-quarter spikes in sales, fees, or performance-based revenues.

Forward-Looking Outlook and Key Considerations

SEI reiterated that it does not provide formal EPS guidance but offered several data points to frame expectations for early 2026. Q4 EPS of $1.38 included about $0.08 of net negative unusual items, comprising $20 million of severance and M&A costs, a roughly $3 million tax benefit, and a $3 million IMS revenue accrual benefit. LSV contributed $22 million of performance fees in the quarter, approximately $8 million attributable to SEI, plus a $4 million VIE gain—all of which are unlikely to recur at the same level and are typically weakest in the first quarter. Looking ahead, management flagged Q1 seasonality, including fewer days than Q4 and lower LSV fees, as well as annual compensation increases, planned hiring, and a step-up in depreciation and amortization as new investments go live. These factors may pressure near-term margins, even as SEI continues to pursue accelerated investments aimed at sustaining double-digit earnings growth and further margin expansion over time, backed by a strong balance sheet and a policy of returning the vast majority of free cash flow to shareholders.

In sum, SEI Investments’ earnings call portrayed a company balancing robust underlying growth with a candid acknowledgment of temporary noise and structural industry headwinds. Record-level earnings power, broad-based margin expansion, and strong sales momentum—especially in private banking, IMS, and the adviser channel—were tempered by one-time charges, seasonal fee dynamics, and ongoing mutual fund outflows. For investors, the key takeaway is a business that appears fundamentally healthy and increasingly tech-enabled, with ample balance-sheet strength and capital returns, albeit with near-term earnings volatility that will require a longer-term perspective.