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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the SEI second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Chairman and CEO, Al West. Please go ahead.
Welcome everyone and good afternoon. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO and Kathy Heilig, SEI's Controller.
I will start by recapping our situation in second quarter 2020. I will then turn it over to Dennis to cover LSV and the investment in new business segment. After that, each business segment leaders will comment on the results of their segments. Then finally, Kathy Heilig will provide you with some important companywide statistics. As usual, we will field questions at the end of each report.
Before we cover the results of the second quarter, I will speak to the set of circumstances we face today. Around the globe, we are dealing with the COVID-19 pandemic. To defeat this throw at our doorstep, we are all involved. And from the beginning of this health crisis, our priority has been on safety and health of our employees and their families along with the seamless delivery of service to our clients.
We first transitioned 99% of our workforce into their homes working remotely without compromising the robustness of our operations or the integrity of our services. Lately, we have begun the slow transition of certain employees back to the office. So far, we have returned approximately 200 employees to the workplace. I am incredibly grateful to our workforce for transitioning both workplace to home and home to workplace and all the while supporting our clients and each other in our communities.
The strengths of SEI shine best when the challenges are extreme. At SEI, we take immense pride in investing for the long term. We have proven business models that have been shaped over the past 50 years of experience. They are the bedrock of our ability to weather the uncertainties of today and emerge from the current crisis stronger and better positioned to take advantage of tomorrow's opportunities.
Our secret to success is straightforward, remain focused on keeping our workforce healthy and productive, invest in our best-in-class technology, innovate continuously and deliver world-class service and solutions to our clients. We will also be relentless in executing on our strategic vision and launching the growth generating initiatives we believe will be at the heart of our future successes. We look forward to sharing our progress with you.
And while our accomplishments during the war with COVID-19 are impressive and we are proud of them, the real heroes are those folks on the frontlines caring for others and saving lives. We honor and thank those who are making the true sacrifices.
So let's turn our attention to the financial results of the second quarter 2020. Second quarter earnings decreased by 20% from a year ago. Diluted earnings per share for the second quarter of $0.68 is a decrease of 17% from the $0.82 reported for the second quarter of 2019. We also reported a 2% decrease in revenue from second quarter 2019 to second quarter 2020. The first and second quarter earnings results were affected by the arrival of the COVID-19 pandemic.
With the arrival of COVID came a major downturn in capital markets. This caused our non-cash asset balances to fall by $27.8 billion in the first quarter and rebound partially in the second by $14.8 billion for a net decrease of $13 billion by the end of the second quarter. For LSV, their balances during the first quarter dropped by $36.6 billion and rebound in the second quarter by $10.3 billion for a net decrease of $25.3 billion.
Also during the second quarter, we repurchased approximately 1.6 million shares of SEI stock at an average price of $54.48 per share. That translates to $89.5 million of stock repurchases during the quarter. In the second quarter, we also continued our investment in the growth generating platforms.
The newest effort is One SEI which is a large part of our growth strategy. As you will recall, One SEI leverages existing and new SEI platforms by making them accessible to all types of clients, all adjacent markets and all other platforms. As a byproduct of investments we make in the second quarter, we capitalized approximately $6.1 million of development and amortized approximately $12.2 million of previously capitalized development. To-date, we have not capitalized any of the One SEI work.
Turning to revenue production. Second quarter sales events, net of client losses, totaled approximately $22.1 million and are expected to generate net annualized recurring revenues of approximately $16.6 million. Clearly, we are encouraged with this year's sales results. They reflect the fact that throughout the company, we are successful in entrepreneurial sales teams driving revenue. Our unit heads will speak to their specific sales results.
In addition, a key objective of our business, particularly in these times of uncertainty and volatility, is to deliver smooth operations. This transition of our workforce from centralized operations to remote interconnected nodes went seamlessly, which again is a credit to the work ethic and customer commitment of our employees. We know that things will never be the same and we will need to adapt to new middle models and realities. We look forward to catching the opportunities inherent in significant change.
This concludes my formal remarks. So I will turn it over to Dennis to give you an update on LSV and the investment in new business segments. After that, all segment heads will update the results of their segments. Dennis?
Thanks Al. Good afternoon everyone. I will cover the second quarter results for the investments in new business segment and discuss the results of LSV asset management. During the second quarter 2020, the investments in new business segment continued its focus on the ultrahigh net worth investor segment through our private wealth management group and additional business and research initiatives including those related to our IT services business opportunity and the modularization of larger technology platforms into standalone components for the wealth management and investment processing space to deliver on our One SEI strategy.
During the quarter, the investments in new business segment incurred a loss of $10.1 million, which compared to a loss of $7.5 million during the second quarter of 2019. This increased loss reflects an increase in investments specifically related to our One SEI strategy. We accelerated our efforts on this initiative during the second quarter making significant progress. Of our expenses in this segment, approximately $8 million is tied to that effort. The One SEI strategy, as Al mentioned, is a companywide initiative to open business opportunity across our entire company as well as creating new business lines. We expect losses in this range for the remainder the year in this segment.
Regarding LSV, our earnings from LSV represent our approximate 39% ownership ventures during the second quarter. LSV contributed $28.3 million in income to SEI during the quarter. This compares to a contribution of $37.8 million in income during the second quarter of 2019. Assets during the second quarter grew approximately $10.2 billion. LSV experienced net negative cash flow during the quarter of approximately $1.9 billion offsetting market appreciation. Revenue was approximately $94.6 million for the quarter with no performance fees. During the quarter, our effective tax rate was 23.3%.
And before I turn it over to Steve, I will be happy to take any questions. Operator, is there any questions?
[Operator Instructions]. And we will go to the line of Chris Donat with Piper Sandler. Please go ahead.
Hi Chris.
Chris, your line is open. We will go to the next line of Chris Shutler with William Blair. Please go ahead.
Hi Dennis. How are you?
Good Chris. What about yourself?
Good. Just on the investments in new business segment, you mentioned the expenses should remain around like the Q2 level for the remainder of the year. Any thoughts on timing or magnitude of when they will fall off beyond 2020?
Yes. We have nearly, we did take an opportunity to accelerate things this quarter. So there is an expectation that they will start to fall off beginning of next year. They won't go away completely. But our goal and other folks on the call also could address this, our goal is to really have this behind, all the work behind us by in the first half of next year. But we certainly should see a decline entering next year.
So I guess, is there any way to like categorize at a high level, will 2021 expenses look a lot more like fiscal 2019?
Yes. I would say more like fourth quarter.
More like fourth quarter, okay.
Yes.
And then, anything on LSV on the pipeline? Obviously, I think that some of the investment performance there has been a difficult. But anything that you are hearing on the pipeline as we look forward?
Yes. Similar story to some of the prior quarters, even though they had net negative cash flows, it was really blended. They did sign new business, some significant size accounts during the quarter. They lost one large account in a global product. That was really what carried really their net negative event. And from what we hear from the leadership at LSV, they are active in the market now. We all know value is not the segment of the market that people are in love with right now. And that being said, deep value is even less in love, people are less in love even with deep value. But it's interesting that when we talk to LSV, I get really a perspective on when they have gone through these tougher cycles in the past, a lot of firms that may have been in their space, the firm itself would potentially, whereas LSV is very disciplined. They know what they are good at. They believe in what they are doing. They have strong conviction that the sun will shine again and they are going to be really well when it does.
All right. Thanks a lot.
You are welcome.
Thank you. And next, we will go to the line of Robert Lee with KBW. Please go ahead.
Thanks. And Dennis, I hope you are doing well. But my questions were just asked. Thank you.
Thanks Rob. I hope you are doing well as well and your family.
Thank you.
Thank you. And next, we will go to the line of Michael Lipper with Lipper Advisory Services. Please go ahead.
Good afternoon. Do you have any more current information on LSV since the end of the quarter? There was evidence that value from last week started to outperform growth? Are you guys participating on that? Or was that not been on to the deep value?
Yes. Really, I guess I wouldn't comment on things that are kind of post-quarter. It's safe to say that if the value segment of the market begins to outperform they will definitely participate in that. And their segment of value would be more deep value. They wouldn't be on an equal footing as the broad value space. But clearly, they would participate in improved performance of value. And as we remind ourselves, we had these moments over the past couple of years, the past year of value having a strong very short period of recovery and then only to be overwhelmed by the tech sector again.
Thank you.
You are welcome, Michael.
Thank you. And next, we will go to the line of Ken Hill with Rosenblatt. Please go ahead.
Hi. Good afternoon everyone. I hope you are doing well.
You too, Ken.
I just had a quick one on the COVID-19 kind of work from home that seemed like you guys moved pretty quickly to that digital type of environment. I am wondering as far as how that relates to the One SEI spend? If there is anything that's maybe precluding you from moving further down some of those tasks or things you would accelerate or things to get markedly better from here? Or kind of conversely if things markedly worse, that increase the spend or decrease the spend at all as far as the One SEI type strategy there?
I think generally that we were able to get some more assets on this project from some of the firms we work with on this type of work. And I don't see that changing one way or the other. And the work on One SEI really isn't affected by whether we are working from home or not. And the work will continue at pace.
Okay. Fair enough. Thanks.
All right Ken.
Thank you. And next, we will go to the line of Chris Donat with Piper Sandler. Please go ahead.
Hi Dennis. Let me try this without being muted this time.
I was going to say you were off mute, Chris. I mean you admitted yourself.
It was a better question the first time. Let me put it that way. I did want to ask just about the geography of the income statement. You referenced in the release that there were some lower travel and promotional expenses. Can you just help us understand where those appear in the income statement lines?
Yes. Travel would be in the -- that would show up in kind of the facilities, supplies and other costs.
Okay. Got it. So as we think about going forward, that's going to be dependent on how much travel goes on and promotion or whatever in the broader economy?
Yes.
Okay. Thanks.
When you can come visit us again.
Exactly.
Right.
And I have no further questions in queue at this time.
Thank you. And with that, I will turn it over to Steve and he will give you an update on private banking and investment management services.
Thank you Dennis. For the second quarter of 2020, revenues for the segment for private banking totaled $107.7 million, which was down 7.2% from the second quarter of 2019, which was due primarily to previously announced client losses and a decrease in our asset management revenues. For the second quarter of 2020, quarterly profit for the segment was down $8.3 million and thus breakeven as compared to the second quarter of 2019. This decrease was primarily driven by the previously announced client losses and a decline in our asset management revenue.
And turning to sales activity. In the quarter, we closed $26 million of gross recurring sales events and recontracted 11 clients for another $17.6 million in recurring revenue, which in total solidified $43.6 million of recurring revenue during the quarter and resulted in $5.1 million in net new recurring sales events. The average term for our recontracts this quarter was 3.3 years. We had no client losses during the quarter. In addition to our recurring events, we closed $3.6 million in one-time sales for the quarter.
We are pleased to announce that we recently have expanded and extended our relationship with our longtime client First Horizon Bank. First Horizon has been an SEI client since 2003. In July 2020, First Horizon merged with IberiaBank which is currently running on a competitor platform but will migrate their business to SEI in 2021. This deal allows us to continue providing our current scope of technology and services to the new larger organization.
Additionally, as we mentioned last quarter, we are pleased to announce that we recently have expanded and extended our relationship with our longtime client SunTrust Bank, which last year merged with BB&T to create Truist, the sixth largest bank in the U.S. This deal allows us to continue providing our current scope of technology and services to the new larger organization.
Another bank in Q2 was a large migration of Schroders Personal Wealth account that continue as part of SEI's relationship with Fusion.
And turning to implementation activity. In the second quarter, we successfully converted three clients to the SEI Wealth Platform, Hills Bank and Trust and Dorsey and Whitney Trust Company, both existing TRUST 3000 clients and Connor Broadley, a new U.K. client also brought live on SWP in a 100% remote environment. In late Q1, both SEI and our client partner teams immediately adjusted to remote environment and met all milestones and live dates to avoid any disruption to our clients' businesses.
The teams have enhanced our remote training and implementation capabilities and the success of these conversions will ensure our continued ability to bring clients live under unforeseen circumstances. This capability to finalize these implementations during these disruptive times is a testament to our clients, our workforce and bodes well for the future. As an update on our backlog, our total signed but not installed backlog is approximately $76.3 million in net new recurring revenue.
From an asset management standpoint, total assets under management ended the period at $22.9 billion, representing a 2% increase from second quarter of 2019. Our AOM increase was due to market appreciation. Despite end of period assets being up, our average assets during the quarter were down, which caused our revenues to be down for the quarter. Our cash flow for the second quarter 2020 was a negative $483.5 million.
And turning to the business in general. Despite the ongoing pandemic and challenges that has brought, we continue to operate business as usual and our workforce continues to rise to the occasion and across our company have executed extremely well. On the prior quarter's call, I outlined our focus for the year. These priorities remain true and as we enter the second half of the year, we continue to center our efforts on growth. This includes continuing to manage through the downward pressure of lost business we have previously discussed, continue to push our One SEI strategy and continue the expansion of our markets and solutions. We will also continue to expand our capabilities in the market across our platform, implementations and solution. While this will result in our expenses upticking in the next few quarters, I view this as an investment in our business and to support the implementation of our strong backlog of revenue.
That concludes my prepared remarks and I will now turn it over to any questions you may have.
[Operator Instructions]. And first, we will go to the line of Robert Lee with KBW. Please go ahead.
Great. Thanks. Hi Steve. Hope you are doing well.
Thanks Rob. How are you? I hope you are doing well as well.
Pretty good. Thank you, all things considered. Just a couple of quick questions. First one is, just want to make sure I am kind of thinking about the movement with all the sales. I mean pretty high gross sales, recontracts seen. But relative to that, kind of the net recurring revenue seem, I guess, rose. So is that kind of factoring that maybe some of recontracting and whatnot, I guess, for a lack of better way, price concessions or something that kind of offset the kind of impacted that private number.
No. I know I threw a lot of numbers, Rob. So let me explain. So in the recontracts we did in Q2 are across the board, our fees pretty much stayed the same. I think in total, the net down of less than 1% of total fees that recontracted, I think the delta that your are looking for there, the $26 million gross, that includes the couple of clients I mentioned that literally went out for large, had large mergers and put their business out basically into the market. So we had to go, even though they are clients, we sell those clients and we obviously were successful. And while we had unfortunately lost the business which we did and I would have announced and netted the loss of the current revenue, I am not going to take credit for the current revenue even though it was an active sales agenda that's in the door. The only net that I am going to announce sits in that $5.1 million, is the net new up revenue.
Okay. I understand. That makes sense. Thank you for clarifying that. And I am just curious, there is very sizeable kind of backlog, but given the environment and as you look forward, what is the thinking about kind of versus original expectations around the pace of the putting the backlog to work, in the sense of, I assume a lot of banks are pretty focused on other things at the moment, even things running efficiently, work from home. But are you expecting that's going to fund over a longer period of time than maybe you did at January 1?
Yes. That's a great question, Rob. So there is, what I would say is, yes, we have seen some delays in it and obviously, this pandemic has impacted that. But I think pointing to the three conversions we had during the quarter, I think we have proven we can do this in a remote environment and I think that we have certainly relayed that communication to our client base. And I think they are very eager to continue. With that said, I would say, right now as I am looking at that backlog, I would say about 50% of it as right now, we are hopeful that will fund within the next 18 months, 50% over extended out to 18 months. Will that change a little bit? Yes, probably. Do I think it will drastically change? No. I am hopeful not. I am hopeful and that's why I called out the fact that we did these conversions and implementations in a remote environment. So while some of the larger client do have other things to focus on, we still do move all of our implementations and conversions and our backlog, we are active. I just think, the longer this goes, yes, there could be some delays. But I don't think it will be, at least we are not expecting right now significant delays.
And maybe if I can squeeze one more in. With the strong recontracting, keeping clients that were at the bid, I am assuming a fair amount of that kind of in process before everything kind of expands more or less. So in terms of new sales activity, are you starting to now see that kind of stretch out more, just like the --?
Yes. So as far as the new activity, what I would say is, it's very engaged and active. So in the U.S. alone, we have over 22 active agendas that we are pursuing right now. And I would say they are all still moving. My prediction and I said this on the prior quarter call, I think it will delay a little bit. I just think, especially for new business, I just think doing the due diligence and going through everything you have to do is a little bit harder in a remote process. There is a lot we can continue to do and we are doing through virtual presentations. But I just think the end decision making and contact signing might be delayed a little bit. But it's not like things were put on hold or paused. Things are moving and that's very positive from my standpoint. And while I do believe things might push a quarter or two, I think we are seeing, I still am hopeful that a number of these agendas will come to fruition this year.
Okay. Great. Thanks for taking my question.
Sure. No problem, Rob.
Thank you. And next, we go to the line of Chris Shutler with William Blair. Please go ahead.
Hi Steve. Good afternoon.
Hi Chris. How are you?
Good. So I just wanted to go back to the first question previously. And just to be clear, the only number that we should really be looking at as far as sales is that the $5 million, right? And the $21 million delta is business that you already had that just is remaining at SEI? Is that correct?
Yes. That's a good way look at it. However, what I would say is, I don't think $5.1 million is really a number you want to be concerned about. Obviously, our business, we are driving two things right now to achieve growth, retention of our current revenue and expansion growth of our current revenue. And I think the number that I would focus on, while I understand the $5.1 million is one that drives new revenue and new growth, we basically secured $43.6 million, which is a strong number in the quarter. So I think that's not a number to the pass over.
Yes. Okay. That all makes sense. And then secondly, just could you give us an update on the competitive environment and to the extent possible bifurcate what you are seeing at larger FIs versus competition in the smaller FIs segment? And then lastly, any thoughts on some of the announcement out there? I am thinking like State Street, FNZ, any impact competitively that could have on SEI longer term.
Yes. So two, I think you have really hard two questions there. So the first one, I would say, Chris, the competitive environment remains the same. We are still seeing the same competitor that you know well competing with us. I think everyone's dealing with this new normal and the pandemic. But we are staying in our lane and we do best and I think that's still resonating very well. The power of our platform, our people, our technology is still resonating and I think we have a very strong value proposition. So from a competitor standpoint, while I look at them, I am focused more on what we are doing and sticking to our playbook.
As far as announcements, there is always announcements. There has been consolidation in this industry. The specific one you brought up on FNZ, so it was announced and made public this year, State Street's wealth management business services business, which is part, has been a client of ours for a long time, they sold off that business to FNZ which is a competitor overseas. So that business is still a client of ours and still under contract and we have talked to the folks at State Street and we are in discussions with them what that means long term for us. But really no update on that. What it means from a competitive standpoint, it's another competitor, really from outside the U.S., entering the U.S. market.
Okay. Thanks a lot Steve.
Sure.
I have no further questions in queue at this time.
Okay. Thank you. So it there is no questions, I will turn to investment manager. So turning to the investment manager segment, for the second quarter of 2020, revenues for the segment totaled $119.3 million, which was $10.1 million or 9.3% higher as compared to our revenue in the second quarter of 2019. This year-over-year revenue increase was due primarily to net new client fundings and existing client expansion. Our quarterly profit for the segment of $44.7 million was $3.8 million or 9.4% higher as compared to the second quarter of 2019. Higher profits year-over-year were primarily driven by an increase in revenue offset by a smaller increase in personnel expense and investments. Third-party asset balances at the end of the second quarter of 2020 were $668.6 billion, approximately $57.8 billion higher than the asset balances at the end of the first quarter of 2020. This increase was due to net new client fundings of $19 billion and market appreciation of $38.8 billion.
And turning the market activity. During the second quarter of 2020, we had a strong sales quarter with net new business events totaling $15.2 million in recurring revenue as well as recontracts of $9.9 million in recurring revenues. Our backlog of sold but not yet implemented events stands at $34.6 million at June 30, 2020. Our events for the quarter included the following highlights.
In our alternative market unit, sales to existing clients were robust as many of our larger sophisticated managers seized market opportunities and launched new products or deployed additional capital. In addition, we were selected by a $60 billion debt diverse manager to automate their fund subscription process and a startup venture capital firm for full administration.
In our traditional market unit, in addition to continuing our momentum with collective investment trusts and all product lines for new and existing clients, we also had success expanding middle office servicing relationships with three existing clients. In Europe, private credit and private equity continued to be main drivers of new names as well as cross sells with existing clients. And in the family office services unit, we signed seven new single-family office clients to the Archway Platform and continue to see strong demand from this segment.
From an overall standpoint on the market and our business, the word engaged comes to mind. We see our clients and prospects highly engaged with us as we continue to navigate through the pandemic and new business model of work from home. Across SEI, from our sales team to our frontline operations, our workforce has continued to be nothing less than impressive in the resiliency and execution in this new norm. It is noticed and appreciated by our clients. While we see some slowing in the process of new sales, we see this is a delay, not a stoppage and we will remain highly engaged in the market with clients and prospects. The value of our platform, technology and services shines well in disruptive times like these and we feel well-positioned to execute on our growth strategy.
That concludes my prepared remarks and I will now turn it over for any questions you may have.
[Operator Instructions]. And we will go to line of Robert Lee with KBW. Please go ahead.
Great. Thanks. Thanks, again, Steve. A question on margins. Margins is holding up really well. I think, if my numbers are right, you may have had your heist margin of at least over the last bunch of years, maybe ever. So do you think that maybe you are getting some scale in this? Or maybe your level of profitability, call it a couple hundred basis points higher than where it maybe have run historically, call it that 35%-ish range. Now it seems like again in more like closer to 36%, 37% and change. Is that fair do you think ultimately?
Yes. I get you, Rob. So what I would say is what I always say. I am confident with this business being in the mid-30s. That means over some of the quarters it might bump up 36%, 37%, might bump down 33%, 34%. I do think the business has been at scale. I think with the larger client base we have had and really grown over the past five years, obviously that adds a good bit of scale to the business. And so we are getting better and we are adding more automation and more tools and investing in our business. So that helped.
I do think the way to look at those is not really quarter-over-quarter, it's year-over-year and how that trend goes. I would say, this quarter, we had a lot going on. We were doing a lot. There was a lot of client movement. But there are still things that I am looking at that I continue to want to invest in and build out for sustainable growth. And that's the most important to me for the future.
So could the business pick up a little bit over 35%? Sure, it could. But I do think it's going to be within that range for a while because I do think there will be continued investment we will make.
Great. That's helpful. Thanks Steve.
Sure.
Thank you. And I have no further questions in queue at this time.
Okay. Great. If there is no questions, then I am going to turn it over to Wayne Withrow to discuss the advisor segment. Wayne?
Thanks Steve. During the second quarter of 2020, we started to settle into an operating model reflecting the COVID-19 crisis. Both the migration to this model and improvements to it were our focus for us.
Second quarter revenues totaled $94 million. These revenues were down 6% from the second quarter of last year. The impact of COVID-19 on our market valuation and a corresponding de-risking of portfolios were the dominant factors reflected in these results.
Expenses were down 1% compared to the second quarter of last year. As Dennis predicted on the first quarter conference call, we had significant savings in the travel and client event area. These were mostly offset by increases in personnel costs, some technology increases and increases in sub-advisor fees, mostly attributable to growth in our SME program.
Our profits decreased 12% for last year's second quarter following our revenue decline and reflecting our leveraged operating model. Our assets under management at the end of the second quarter was $66.6 billion. This is down roughly 1% from June 30, 2019, while reflected recovery of much of the steep market declines in March. Following some recovery in our cash flow during the first quarter, our second quarter net cash flow lost ground and was a negative $642 million. We recruited 63 new advisors during the quarter, in line with our first quarter recruitment rate.
Moving past the numbers, there were changes in our product line, operational model and client engagement model during the quarter. As to our operations model, we hit the ground running when our operations transitioned to a work from home environment. Quite frankly, this will influence our operations thinking going forward. Our client engagement model, however, was not so easy as SEI, our advisors and our advisors' clients are all changing at the same time. The good news is that client and prospect engagement at our virtual activity has been strong and we are investing in a digital marketing and sales activity with the goal to convert that virtual activity to actual cash flow.
Moving on the product line changes. We announced a partnership with the American Funds and have launched the SEI American Funds models. These models are designed, constructed and maintained by the SEI investment management unit and are implemented with American Funds managed by the Capital Group. Bringing together the power of both organizations should result in an attractive offering for advisors. Early indications support this thesis.
In summary, the COVID-19 crisis and its fallout dominated the second quarter and will have a prominent role in what we do going forward. Our scale, strong financial position and resilient infrastructure will allow us to make the best of this challenge. At its core, restoring our growth rate remains our primary objective.
I now welcome any questions you may have.
[Operator Instructions]. And we will go to the line of Chris Donat with Piper Sandler. Please go ahead.
Hi Wayne. How are you doing?
Hi. Good afternoon Chris. Great.
I wanted to ask about your comment about the de-risking of portfolios. Is that something that was more prevalent early on in the quarter? And then have we seen any re-risking since then/ I am asking because I am curious we might see a recovery in the revenue yield in coming quarters with maybe higher mix or with less cash probably?
Well, I guess, Chris, the latter part of your question was your real question. And yes, that's exactly what happened. And when you look at the yield, the yield reflects, if you look, the point-to-point in the change in money market and other less risky assets, the point-to-point increase does not kind of reflect as much as the average basis. So the average was really what drove the revenue. So yes, it has started recovering and the de-risking occurred during the quarter, but it could go the other way. I would expect it to go the other way going forward.
Okay. Thanks very much.
Thank you. And next, we will go to Ken Hill with Rosenblatt. Please go ahead.
Hi. Just a quick question on client engagement as you are thinking about it here moving forward. What types of tools are you looking at or different processes that you are thinking about bringing in that's going to engage clients in a little bit more of a digital way for the current environment? Just kind of hoping to learn a little bit how you are thinking through that here.
Yes. I think a lot of the engagement is, as a start, we have a lot of the engagement has been face-to-face. Now we are doing traditional, what I will call traditional digital engagement with WebEx and Zoom kind of digital means. But the, we are supplementing that with, if you will, kind of on-demand videos around certain components of the offering, certain components in the sales cycle. So I guess you see a little bit of a shift from a push kind of sales process to a poke kind of the sales process. We are making catalogs of digital engagement available to advisors so they can, if you will, shop at their own pace. I will say that's the major changes.
Got it. And then from an advisor perspective, I think you mentioned 63 coming in. That's kind of on par with the prior quarter. What's the pipeline there look like? And any color you can provide looking a little bit further out?
Yes. I think our pipeline of new advisors remains very strong and the amount of digital engagement is really strong. So we feel pretty good about it.
Okay. Any particular areas those are coming from? Or is it just more broadly?
I think it's pretty broad. It's across the board.
Got it. Okay. Thanks for taking the questions.
Thank you. And next, we will go to the line of Robert Lee with KBW. Please go ahead.
Great. Thanks. Hi Wayne. Hope you are doing okay?
Yes. I am doing great. You too.
Thanks. A couple of questions. So first just make sure I have the numbers right. The net cash flows in the quarter was minus $650 million and then whatever, I just want to clarify the number. But also I think we would start this quarter breaking that down between cash flows from your traditional business and cash flows onto the more on the AUA side of the fence, so to speak. So can you maybe give us that breakdown?
Yes. What I gave you was cash flow into the managed programs. I didn't mention but I would tell you, the cash flow into what I will call the AUA, we had $600 million in positive cash flow in the AUA level, right. That wasn't in my comments, but that's the number.
Okay. And then the traditional platform, the assets under management was minus $600 million. Was it mostly just [indiscernible]?
Yes. You have it right, yes. It was $600 million.
All right. Great. And then I am just kind of curious to know the American Funds initiative, it seems like a pretty large departure from what you have historically done. Your architecture kind of picking the right managers for your products and you have a great organization. But here you are just picking up one manager I guess. Maybe just trying to get a sense how you think of your value-added to that was really a way for American Funds to reach your advisors in a different way. I mean I am just trying to get a sense of what's unique about that from the advisor perspective versus something maybe American Funds today?
Well, I think there is a couple different aspects to it. Number one, the models are constructed and maintained by the SEI investment management unit taking all of our experience and our history in sort of portfolio construction and management. So we are comanaging them, if you will, with the American Funds and the components, if you will, the implementation components or what the American Funds provide. In addition, all of these assets on the SEI operating platform. So it's the strength of our technology platform which is only available to us.
So in many ways, it is offering, if you will, a branded asset manager product that implements our portfolio in SEI at the portfolio structure level on our platform. That's what makes it different. Now, it still adheres to our goal-based investment management strategy. It's still our overall investment structure. When you think about it, it's no different than what we do when we offer ETF product in our portfolios where we have ETFs and we don't manage ETF, the third-party ETF. But we structure them, we managed them, we do the tax loss harvesting, we run them on our platform. It's all those components.
Great. And then may be just kind of curious. There is any sense you can give us on kind of how business trended through the quarter? I mean as market felt like went mostly straight up since the end of March. But I mean have you, as you kind of made your way through the quarter and SME market rebounded, there was any sense that the client advisor and client engagement was changing or improving over the course of the quarter? Or was it pretty solid? Any color you may have on that.
I guess I would say, as we look early in the quarter, everyone was just reacting to the crisis. And I don't want to say it was panic but volumes were astronomical and people were just reacting, de-risking portfolios, stabilizing their clients. I think as we progressed through the quarter, we are not entirely there, but it was slowly, when I say us and our advisors, slowly returning to wealth. It may be a little bit of a new operating environment in this COVID-19 world but we have got to get back to business again. So I think that would describe a change as seen during the quarter?
Great. Thank you. Thanks for taking my questions.
Thank you. And next, we will go to the line of Chris Shutler with William Blair. Please go ahead.
Hi Wayne. Good afternoon.
Good afternoon Chris.
So on the outflows in the quarter, were those due to, I guess, tougher new sales or greater attrition or both?
I would say it was more outflows from the existing business and not new advisor signings. I think the new advisor activities, but I think what you are seeing is, people moving out of managed products into safer, maybe guaranteed type products. And you are just seeing an overall slowdown in just receipts. I mean it's entirely consistent with what we have seen in other periods of financial market stress.
Okay. And then I guess secondly, just there is a lot of consolidation activity happening in the TAM space. I think some other firms out there are growing at frankly a better clip than your businesses today. So I guess the question, are you contemplating making any more or feel there is a need to make any more material changes to the business or the structure of the business to see a real pickup in growth?
I don't know exactly how to answer that. We are constantly making changes that we need to continue to change our product line, continue to change our technology platforms going forward. In terms of anything more specific, I am not really prepared to talk about it in this type of public forum.
Okay. Thank you Wayne.
Thank you. And I have no further questions in queue at this time.
Thank you very much. At this point, I would like to turn it over to Paul Klauder to talk about our institutional segment.
Thanks Wayne. Good afternoon everyone. I am going to discuss the financial results for the second quarter of 2020. Second quarter revenues of $76.5 million decreased 6% compared to the second quarter of 2019. Second quarter operating profits of $39.6 million decreased 5% compared to the second quarter of 2019. Operating margin for the quarter was 52%. Both revenues and operating profits were impacted by negative client fundings, lower capital markets and currency translation. Operating profits were positively impacted by lower travel costs and reduced costs associated with client events.
Quarter-end asset balances of $85.6 billion reflect a $2.6 billion decrease compared to the second quarter of 2019. This decrease is driven primarily by negative client fundings. Net sales were a positive $400 million for the quarter, which was comprised of gross sales of $900 million and client losses of $500 million. New signings included a U.S. hospital, U.K. DB fiduciary management and a U.S. not-for-profit relationship. The unfunded new client backlog at quarter-end was $460 million.
New sales momentum and activity has been impacted by the crisis, as prospects have extended their timeframes. However, we did see an increase in OCIO RFPs, inbound inquiries and formal decision making processes in the second half of the quarter. We continue to receive positive feedback from our clients on our proactiveness and attentiveness. We have spent much time learning and enhancing our delivery approach in this virtual environment.
Regarding new strategic initiatives. We have made progress on a large investor platform of offering technology, non-fiduciary investment services and risk management, consistent with the One SEI mindset. We are moving forward to a formal launch in the third quarter.
Thank you very much and I am happy to entertain or answer any questions that you may have.
[Operator Instructions]. And we will go to the line of Robert Lee with KBW. Please go ahead.
Yes. Hi. Thanks. Hi Paul. How are you?
Good, Robert.
Can you maybe expand a little bit on the new business initiatives and the product launch? I just want to make sure I understand it fully kind of what product capabilities that scales? Maybe over time how we should think about how that maybe changing through all the economic functions or could changed economic function of the business?
Yes. Absolutely, Robert. So this was something that we introduced the concept last November at the Investor Day. This would be going to larger institutional investors, typically over $2 billion. It doesn't have to be over $2 billion but effectively these would be organizations who don't want to outsource, who want to have an investment team, who want to have investment talent and are looking for technology similar to the technology that Steve sells through the investment manager market segment. So technology to help with the entire administration, valuation, all the alternative investments, non-fiduciary investment services.
So we would not be taking accountability for picking and overseeing managers but we would be providing access to them and opinions for them about managers and about asset allocation studies and then a full risk management platform. So in essence, it would be taking all the capabilities of the firm and offering them in a flexible environment.
And Robert, this represents a whole new market for us because at some level, it states $2 billion, maybe $3 billion, maybe it's $1 billion depending on the segment, there are organizations that will not outsource. They are committed to their investment process and their team. So this is a whole new incremental marker for us to be able to go into and take all that horsepower of SEI and be able to offer it to this market segment.
And I mean I guess I don't want to just characterize it, but it almost kind of feel like going back to what you did decades ago, which for lack of better way of putting it, consulted. So no, is that's not a fair way of thinking of it? Or is there something really kind of much more different about it?
Yes. I would not categorize that we are trying to be an investment consultant. This, at its heart, is technology sale. This is technology that these organizations need. Again, very similar to the technology that Steve has delivered to the investment management segment to help them be able to run their sophisticated investment process. Most of the time, these types of organization have a myriad of Excel spreadsheets and have a global custodian and it is a very fragmented and non-integrated process. So I would say, it's far more of a technology sale. Some of the sweeteners that we can add are the non-fiduciary services with regard to giving opinions about managers and asset allocation studies. But at the heart of it, it would definitely be much more technology than it would be trying to sell consulting services.
Great. Those were my questions. Thank you.
Thank you Robert.
Thank you. And I have no further questions in queue at this time.
I would now like to turn it over to Kathy Heilig, SEI's Controller.
Thanks Paul. Good afternoon everyone. I have some additional corporate information about this quarter. Second quarter 2020 cash flow from operations was $165.2 million or $1.10 per share. Year-to-date, June 2020 cash flow from operations is $264.1 million or $1.75 per share. Second quarter free cash flow, $145.3 million. And year-to-date free cash flow, $217.2 million.
For the second quarter, capital expenditures excluding the capitalized software were $13.8 million which did include $5.5 million towards the new building, bringing year-to-date capital expenditures excluding capitalized software to $34.4 million and about $15.7 million relates to the new building. We are projecting remaining capital expenditures for the year excluding capitalized software to be about $16 million which includes about $9 million related to the facility.
We also would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited. In some cases, you can identify forward-looking statements by terminologies such as should, may, will, expect, believe, continue or appear.
Our forward-looking statements include our expectations as to the long term consequences of potential opportunities resulting from the disruptions precipitated by the COVID-19 pandemic, the degree to which you will benefit from our scale of resources, technology and infrastructure, the client offerings, business segments and client types that will drive our growth, revenue that we believe will be generated by sales events that occurred during the quarter or when our unfunded backlog may fund, our resources allocations in technology and platforms in which we choose to invest, including our One SEI initiative, the strategic initiatives and business segments that we will pursue, our ability to manage our expenses, scale our offerings and establish sustainable and accelerating margins, the strength of our pipeline increase opportunities and our ability to execute on and the success of our strategic objectives.
You should not place undue reliance on our forward-looking statements as they are based on the current beliefs and expectations of our management subject to significant risk and uncertainty, many of which are beyond our control or subject to change. Although we believe the assumptions upon which we base our forward-looking statements are reasonable, they could be inaccurate. Some of the risks and important factors that could cause actual results to differ from those described in our forward-looking statements can be found in the Risk Factors Section of our Annual Report on Form 10-K for the year ended December 31, 2019.
And now please feel free to ask any additional questions that you may have.
[Operator Instructions]. And I have no questions in queue at this time.
So ladies and gentlemen, we are fighting on two fronts. First, the COVID-19 disruption and second growing revenues and profits during disruptive time. On the first front, we were very fortunate to have planned well as we have been able to keep our workforce healthy and productive. On the second front, we face short term headwinds but we believe that we will prevail, thanks to our motivated and innovative workforce and the strategic investments we are making in our future.
So please be safe and remain happy and healthy and have a good day. Thank you for attending our call.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.