SEI INVESTMENTS CO (SEIC) stock intrinsic value fair value estimate & owner earnings analysis

SEI sells the back-office machinery of wealth management. Banks, financial advisers, institutions and fund managers pay it to run investment platforms, administer funds (about $1.2 trillion of assets under administration on average in 2025) and manage portfolios. Most revenue is a recurring fee tied to client assets or a multi-year platform contract. SEI also owns 38.5% of LSV Asset Management, whose cash distributions ($127.5 million in 2025) are about a fifth of the cash SEI generates and are the largest single concentration in the company. How we measure the earnings. We start from operating cash flow, take out the swings in receivables and payables, subtract the cost of stock granted to employees, and subtract only the capital spending needed to maintain the business (SEI spends roughly 4% of revenue on equipment and software and it has trended lower). Stated per share on this basis, owner earnings were $2.06 in 2016, $4.07 in 2021, $3.29 in 2023, $4.36 in 2024 and $5.33 in 2025. One judgement matters: SEI's client receivables have risen almost every year (by $148 million in 2025, which management attributes to higher receivables from Investment Managers clients), so removing working capital flatters 2025. We therefore anchor on a five-year median (2021-2025, which includes the 2022 market decline and the 2023 trough) rather than on 2025: about $574 million a year of cash before lenders, or roughly $4.65 per current diluted share. Counting the 2025 receivables build as a real cost would put the figure near $508 million. First-half 2026 operating cash flow of $347 million, against $243 million a year earlier, is consistent with the $574 million level but does not justify raising it. In 2025 owner earnings per share grew 22%; we assume no growth in the first year, so no reversal needs to be explained. The company is essentially debt-free (about $29 million of borrowings at June 2026, and an undrawn $500 million credit line to August 2030), so cash flow before and after lenders is almost identical. What changed since the previous analysis. Two things in the business: SEI sold its Family Office Services business in June 2025 (a $94 million gain that we exclude from earnings), and on December 3, 2025 it bought a 57.5% controlling stake in Stratos, a network of more than 350 affiliated advisers, for $323 million of cash plus 42.5% of the new holding company issued to Stratos holders. Cash fell from $840 million to $400 million in 2025 as a result and as SEI bought back $628 million of its own stock. Because the earlier figures were built on a different earnings definition, they are not comparable and we do not bridge them. Base case: about $75 per share. Cash flow stays at about $574 million for ten years with no growth credited. We credit none because the growth of the last decade came largely from rising markets and new sales that have not yet happened; neither is secured. After year ten we let earnings erode 1% a year, reflecting client losses and fee cuts SEI itself reports in its Institutional Investors segment and in its fund and separately-managed-account programs. The business is worth about $8.8 billion; SEI owes essentially nothing beyond about $29 million of borrowings and holds roughly $147 million of free cash, so net cash is about $117 million. We add Stratos at what SEI paid for its share ($323 million) because we have no operating history to value it on, and we do not deduct the Stratos holders' 42.5% since their share of its profits is not counted. Equity is about $9.2 billion on about 123 million diluted shares. Bear case: about $42 per share. We rebuild a full market downturn from SEI's own record: owner earnings fell 17% in 2022 and 35% in 2023 against the 2021 peak on a cash basis, and, per SEI's 2008 results release, in 2008 assets under management fell 32% (from $196.8 billion to $134.3 billion) and net income fell 46% including $158 million of money-market-fund charges. We apply those declines to a cash-basis anchor of $508 million, take $40 million a year permanently out for LSV losing clients, recover only to 90% of that, then let earnings fade 2% a year as fee pressure continues (3% a year after year ten). The SEI Integrated Cash Program, which produced $82.9 million of revenue in 2025 versus $51.5 million in 2024, is exposed to falling rates and is inside that decline. We value Stratos at half of cost and deduct $100 million for the Qu litigation, in which SEI was joined in January 2026 as an alleged aider of claims against LSV executives seeking about $100 million (SEI believes it has valid defenses; the Rubicon custodian lawsuits carry a stated exposure of about $15 million, which we treat as small). The business is worth about $5.0 billion, SEI owes about $29 million against $147 million of free cash, and equity is about $5.2 billion. Bull case: about $110 per share. Cash flow starts at $640 million, below the $677 million reached in 2025, and grows 3% a year for ten years, under the roughly 5% pace of the last decade. The levers are already visible: the new SEI Scope platform went into service in 2025, average assets under administration grew 15% in 2025 on sales to existing alternative-investment clients, and Stratos added advisers. After year ten earnings hold flat because multi-year platform contracts renew. The business is worth about $13.1 billion, net cash is about $117 million, and Stratos is at cost. What would make this wrong: the receivables build proving a permanent cost (the base would fall to about $66), a deeper or longer downturn than 2022-2023 in the fee-based programs, LSV losing assets faster than disclosed, a Qu outcome that falls on SEI, or Stratos earning less than it cost. We could not independently size how much of 2025 earnings came from the Family Office Services business before its sale, nor the $118.6 million of deposits on future acquisitions on the December 2025 balance sheet, so neither is counted. Margin-of-safety price: $38. We are reasonably sure of the earnings level, since cash-basis owner earnings have stayed between about $357 million and $549 million over five years, and nothing structural threatens it near term: there is almost no debt and the shares pay about $1.00 a year. The worst plausible outcome is a market fall combined with LSV client losses and an adverse Qu result; the company would survive that comfortably, but earnings would sit near $300-400 million for a few years. The two things we are most likely wrong about are the working-capital treatment and what Stratos earns. If both turn out unfavourably, the base case value falls to roughly $64-66 per share. The price assumes a holding period of about four years, during which roughly $4-5 per share is paid in dividends while buybacks shrink the share count. If the business then is worth about the base value, from $38 the base case implies about 20% a year including dividends; the bear case implies a small positive return rather than a loss.