SEI Investments

SEI Investments reported second-quarter revenue growth of 15% and $1.66 adjusted earnings per share, up from $1.44 in the first quarter. Net new recurring sales events, a metric akin to net bookings, were $33 million in the quarter, down sequentially but up from $24 million in the year-ago quarter.

Why it matters: SEI investment managers segment continues to be the star of the show with trailing 12-month net recurring sales of $121 million, up from $115 million at the end of the first quarter, 17% revenue growth, and over 2 percentage points of year-over-year operating margin expansion. The investment managers' sales events skewed toward alternative clients (hedge fund, private equity) over traditional asset managers, and about half of its new sales were from new clients, with the other half from existing clients. Encouragingly, SEI reported that its sales pipeline is “outstanding” and that inbound sales interest is above norms. The Private Banks segment is showing some signs of improvement with positive net recurring sales and margin expansion. The investment advisors and institutional investments remain weak points. We note that in these latter two markets, SEI faces much larger competitors, so we do not see this dynamic changing soon. LSV, of which SEI owns a 38.5% stake in, had an unexpectedly strong quarter in our view. LSV, which had been bleeding assets over the last several quarters, saw net inflows of $2.0 billion and unusually strong performance fees of $17 million.

The bottom line: We expect to raise our $98 fair value estimate for narrow-moat SEI by 5% to 10%, as the investment managers segment and LSV are performing ahead of our model. While markets and flows can reverse and we wouldn’t extrapolate too much from one strong quarter, SEI finished the quarter with LSV assets of about $117 billion, up from $101 billion at the beginning of the quarter, and is currently tracking ahead of the preearnings year-end 2026 projection of $105 billion.

The private banks’ operating margin of 20% was up from 16% last year. As SEI continues to focus on efficiency and with margins still lagging peers, we see more upside than downside and model 28% in 2030. The segment’s sales improvement, including professional services sales, which are above segment levels, gives us confidence in this forecast.

After updating our model, we are increasing our fair value estimate to $98 per share from $92, primarily due to equity market appreciation since our last update, better-than-expected sales activity in the firm’s investment managers segment, and time value of money. Our fair value estimate translates into approximately 16 times our 2027 GAAP EPS estimate. In our base case, we expect revenue growth at about 6.5% CAGR over the next five years. In addition, we expect EBITDA margins in the private banks segment to expand to 32% by 2030, which is up about 200 basis points per year from 2025. We model this margin expansion due to higher efficiency, revenue growth, and the possible retirement of legacy platforms. Given the scale achieved in the other segments and the already high margins, we expect much less margin expansion in the firm's other segments. In the institutional investors segment, we expect margins to decrease slightly due to competitive and industry pressures. In addition, from time to time defined benefit plans choose pension risk transfers, thereby transferring their plan to an insurance company.

With approximately 80% of the firm's revenue related to asset-based fees, SEI's revenue and profitability are sensitive to equity markets, asset flows, and the fee rate it earns. Our base case calls for about 5% increases in equity market valuations. With historically minimal debt, the firm has a conservative capital structure. Supporting this, the firm has communicated a willingness to go to a net leverage ratio of 1.0 times for an appropriate acquisition or investment. We peg SEI's cost of equity at 9%.

Overall, we believe SEI Investments warrants a narrow moat rating.

One qualitative factor that prevents us from assigning a wide moat rating is that SEI does not have dominant market share in any of its segments. In private banks, we believe Fidelity National Information Services (SunGard) is larger in the relevant markets; other competitors include Fiserv, Fi-Tek, and Innovest (owned by SS&C Technologies). In the investment advisors segment, Envestnet is far larger, and SEI also faces competition from other turnkey asset-management platforms (such as AssetMark) and RIA custodians. In the institutional investors segment, Russell Investments and Mercer both have greater fully outsourced AUM. In the investment managers segment, the custody banks, SS&C, and Citco all have more alternative assets under administration. Beyond switching costs, which in some segments are quite modest and rely primarily on inertia, we do not see additional moat sources. Furthermore, LSV focuses on value equity, which could be out of favor for an extended period of time.

We believe SEI's private banks segment, which provides investment software and processing to banks and trusts, does not have a moat. While contracts for the firm's legacy Trust 3000 and SEI Wealth Platform system are generally five to seven years long, client losses can occur from a competitive request for proposal, or RFP, bid or from bank mergers. More important, profitability in this segment has been lackluster over the past several years. SEI's clients run the gamut from large US banks (Wells Fargo, US Bank) to regional players (Regional Financial), foreign banks with a US presence (CIBC), and smaller community banks. In addition, due to the heavy amortization of the firm's SEI Wealth Platform, or SWP, we believe this segment is the firm's most capital intensive.

We would characterize the firm's investment advisors segment, which provides wealth-management software and solutions primarily to financial advisors in the independent broker/dealer and Registered Investment Advisorchannel, as having a narrow moat. SEI provides a technology platform and provides (or integrates with an outsourced provider) for client reporting, proposal generation, financial planning, customer relationship management, rebalancing, aggregation, tax management, portfolio management, and firm reporting. Advisors who switch firms face process disruption and end-client disruption (for example, switching a client's custodian requires additional paperwork, clients may use SEI's portal for logging in, and so on). We also point out that this segment's operating margin is consistently above 40%.

In the investment managers segment, which we view as a narrow moat, contracts for fund administration outsourcing contracts are for three to five years. In addition, it takes a client anywhere from three months to over a year to onboard to a new provider (which can take a year to select). Finally, we also believe the hedge fund part of this business is particularly attractive (we understand about half of the segment's assets under administration are alternative). Because hedge funds have high fees, they are less sensitive to the basis points paid for fund administration fees, and often these fees are directly passed through to investors.

We do not view the firm's institutional investors business, which provides financial advisory services to endowments, foundations, pension plans, and other organizations, as having a moat. This segment has strong operating margins, but pricing pressure, competitive takeaways, and other factors have weighed on both flows and the fee rate. While the operating margins are still strong, this RFP-driven business is becoming increasingly competitive. We understand there are several dozen firms that can provide outsourced CIO services. One reason for the increasing competition is that the success of the model has meant that investment consultants (such as Cambridge Associates) have moved toward outsourced CIO offerings. We've seen margins and fee rates compress notably in recent years and outflows have been meaningful.

We view LSV, a quant-based value equity asset manager established in 1994 with a seed investment from SEI, as a narrow-moat business. SEI has a 38.5% share (as of March 2026) in LSV and generated $132 million in pretax income from its stake in LSV in 2025. SEI's investment in LSV is $122 million on its balance sheet, suggesting a very high return on invested capital. Given the scalable nature of its quantitative approach, LSV generates 75%-plus operating margins. We estimate the net outflows over the past six years have averaged negative 10% per year and, as a result, asset levels in 2024 are well below 2018 levels despite market appreciation. That said, LSV's fee rate has been relatively stable.

CEO Ryan Hicke has shown real results with the private banks segment as net sales and operating margins have improved and there is still a runway for further improvement.

SEI’s investment advisors segment should benefit from the continued growth of fee-based advisors and should interest rates remain elevated, it can monetize client cash more than the market appreciates.

SEI can significantly improve margins beyond private banks with its new segment reporting and cost take outs in its investments in new businesses segment and non-US operations.

About 80% of SEI’s revenue is from asset management, administration, and distribution fees, which are primarily based on the value of the assets involved. As a result, SEI is exposed to changes in equity and fixed-income markets, a factor outside its control.

SEI’s focus on active management leaves it in a weaker position against more passive competitors. Quant value equity manager LSV has also seen outflows in recent years.

SEI's lack of commanding market share in any of the markets it competes in may leave it vulnerable to falling behind.