Apr 23, 2008
Executives
Alfred P. West Jr.
- Chairman and CEO Dennis J. McGonigle - EVP and CFO Joseph Paul Ujobai - EVP of Global Wayne Montgomery Withrow - EVP, Investment Advisors Edward Doyle Loughlin - EVP of Global Institutional Stephen P.
Meyer - EVP Kathy C. Heilig - Chief Accounting Officer, Controller
Analysts
Murali Gopal - Keefe Bruyette & Woods Tom McCrohan - Janney Montgomery Scott LLC Justin Hughes - Philadelphia Financial Glenn Greene - Oppenheimer Jeffrey Hopson - Stifel Nicolaus & Company Thomas McCrohan - Janney Montgomery
Operator
Ladies and gentlemen, We'd like to thank you for standing by. And welcome to the SEI First Quarter Earning Teleconference Call.
At this time all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time.
[Operator Instructions]. As a reminder, today's conference call will be recorded.
I would now like to turn the conference over to your host, Chairman and CEO, Mr. Al West.
Please go ahead, sir.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Good morning everybody, and thank you for joining us this morning. All of our segment leaders are on the call, as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller.
I am going to start by recapping the first quarter, and I will then turn it over to Dennis, first to expand on a few financial matters including our SIV disclosure, and to cover LSV in the investment new business segment. After that, each of the business segment leaders will comment on the results of their segments.
Then Finally, Kathy Heilig will provide you with some important company wide statistics. As usual, we will field questions at the end of each report.
So, let me start with the first quarter. First quarter earning sales, 23% from the year ago on a revenue growth of 3%; diluted earnings per share of the quarter $0.25 represents a 19% drop from the $0.31 reported for the first quarter of 2007.
Our earnings for the quarter were adversely affected by our first quarter charged to earnings of $25.8 million, or approximately $0.08 per share. This was due to a further drop in the market prices of commercial paper of certain Structured Investment Vehicles, or SIVs held in three of our money plants.
This is a SIV situation we addressed in our third quarter 10-Q and the special investor call we had at that time. And we also addressed the issue in our fourth quarter 2007 earnings call.
Now, Dennis will further update you on the SIV situation in a few minutes. Our modest growth in revenues for the quarter is a result of fees from new clients across whole of our segments.
And now while we experience a solid new business quarter, these gains were substantially offset by weaknesses in capital markets. Since a good portion of our revenues are directly tied to asset balances under either management or administration.
Our non-cash asset balances fell by $13.5 billion during the quarter, and this contraction was due to lower equity and debt markets was more than offset cash-flows during the quarter. SEI's assets under management fell by $7.7 billion during the quarter while LSVs assets under management fell by $5.8 billion.
And our global 60-40 port folio was down 5% during the quarter. Also during the quarter, we repurchased 1,963,000 shares of stock at an average price of nearly $26 per share.
That translates to 51 million of stock repurchases during the quarter. The recent turmoil in capital markets, as well as the SIV issue made the first quarter particularly challenging one.
And regardless to these issues, we do continue to make progress in transforming our company to new strategies and new solutions for our clients. This transformation is critical to the long-term health of our business and so we continue to persevere.
Included in our efforts are three notable investments. First, we are building and implementing new client processes in each one of our markets; and second, we are continuing to invest in the Global Wealth Platform, the technology that's behind many of our transformation efforts.
And third, we are building the operational and service infrastructure necessary to handle clients all over the world on the new platform. We continue to be satisfied with the progress we are making in developing the Global Wealth Platform.
We have recently delivered some stabilization scalability functionality, as well as conformed to significant changes in the UK tax code. And we are near delivering functionality and scaling the investment management function.
During the first quarter this year, we capitalized 12.2 million of the Global Wealth Platform development. In addition to invest...
to development expenses and amortization has additional functionalities rolled out. Maintenance costs for the platform grow, and so do the cost establishing operations throughout the world.
Now the operation of HSBC's UK private bank continues to go well. And market and sales activity in the UK and Europe continue strong, and Joe Ujobai will speak to these activities.
As we look across all the company's businesses, we continue to be pleased with the progress we are making in our transformation. We are confident that the investment in the Global Wealth Platform bodes well for marking that efforts to wealth managers throughout the world, in our segments, serving institutional investors, and investment managers continue to grow...
show significant progress in all aspects of there businesses. And then in our advisor business, we have made great strides in engaging our advisors and strengthening our relationship with them.
And with the backdrop of troubled equity markets and the structures due to the sub prime debt markets, the short one will remain challenging. And if these markets continue to fall, we expect extended sale cycles.
But rest assure, during these times, we will continue to work hard to transform our business, control costs and do the right things. We are firming our beliefs that these efforts are on a right path to build a stronger, faster growing company.
Now this concludes my remarks, so I'll now ask Dennis McGonigle to cover some company financial issues and give you an update on LSV and the investment in the new business segment. After that, I will turn it over to the heads of the other business segments.
Dennis?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Thanks Al. Good morning everyone.
I will provide an update on the capital support agreements that we have discussed at lengths in our 10-K filing and on our prior two calls, and their impact on our earnings. I will then briefly cover the first quarter results for the investments in new business and LSV segments.
As you are aware from our fourth quarter call and 10-K filing, SEI entered into capital support agreements with three SEI money market mutual funds, back in the fourth quarter of 2007. Among other money market instruments, the funds hold senior notes issued by Structured Investment Vehicles or SIVs, some of which have either seized making payments, or potentially may seize making payments on its outstanding notes on the schedule maturity dates.
As you will recall from our filings in October, 2007 in our recent 10-K filing, S&P advised SEI that it would place any mutual fund that had AAA rating and owned certain SIVs on credit watch with negative implications unless the fund was provided credit support having an A-1 short-term rating by S&P. Although we were not obligated to provide the credit support, in order to avoid our credit watch by S&P on our funds and to address the need of customers, SEI entered into the capital support agreements.
We entered into similar agreements with two other funds. Under these agreements, as of March 31, 2008, we are committed to provide up to an aggregate of $162.5 million of capital into the funds, if a fund realizes a loss on its covered SIV holdings, so that the net asset value per share of the fund will be less than 0.995, or in the case of one fund, 0.9975.
We provided detail about this arrangement in our annual 10-K filing, and we encourage you to review that disclosure for more detail on the SIV issue and the capital support agreements. I would like to remind you of a few things we said in the past.
First, in the event that SEI is required under the capital support agreements to commit capital to any fund, we will be required to pay the required capital contribution to the fund, and will not receive any consideration from the fund in the form of shares of the fund, or any other form the contribute to the cap. Second, if the mark-to-market value of the SIV, or other security, as detailed in our filings is less than its amortized costs, and if the aggregate net asset value of the fund using market values is less than 0.995, or in the case of one fund 0.9975.
Then even though a loss has not been realized with the sale or other disposition of the security, SEI will be obligated to reflect its obligations under the support agreements to commit the required amount of capital, so that the fund's net asset value was at least 0.995, or in the case of the one fund 0.9975. However, we are not required to pay the required capital contribution to the funds unless their loss is realized by the funds.
With that as background, SEI is obligated to recognize a non-cash expense, or its obligations to the funds for an additional $25.8 million during the first quarter of 2008. We recorded this charge to earning in the net gain loss from investments line of our income statement.
When combined with the charge to earnings that was previously recorded in the fourth quarter of 2007, total losses recorded as a result of this support as of March 31st, 2008 are $50.9 million. This amount is reflect...
this amount is accrued on our balance sheet. As you are all well aware during the first quarter 2008, the credit markets continue to deteriorate.
These market conditions reduce the market values of the collateral underlying the money market fund earnings. The reduction in market value resulted in the direct increase in our obligation under the support agreements.
Currently, as of yesterday, April, 20th, 2008, the amount which would be accrued for SEI's contribution obligations under the capital support agreements based on yesterday's market prices was approximately $61 million, which reflects the current carrying value of all SIVs and other securities with the greatest impact from Cheyne and Victoria. Should yesterday's market value is an asset level hold through the second quarter, SEI will incur an additional loss of $10 million.
We expect to file our 10-Q shortly; I encourage you to review that filing and all past fillings for further information. Ultimately, we believe that both Cheyne and Victoria among the other SIVs will be successfully restructured although we cannot predict the timing of this and/or the net impact this will have on the ultimately realized value of these holdings.
Future accruals for our obligations under the capital support agreement will depend upon prevailing condition in the credit markets as they impact the value of money market instruments including SIVs on the credit worthiness of the SIV securities and upon the assets under management in the funds. For further information, we published the month end holdings of our money market funds, after the 15th day of the following month at seic.com/holdings_home.asp.
I will be happy to repeat that during the Q&A. I would also like to remind everyone all things being equal that improvement in the value of these securities above of their current pricing would reduce the current recorded loss.
I hope this gives you some perspective on our overall exposure and the potential impact on future earnings. I will now take any questions on this topic that you may have.
Question And Answer
Operator
[Operator Instructions]. Our first question comes from the line of Murali Gopal of KBW.
Please go ahead, sir.
Murali Gopal - Keefe Bruyette & Woods
Good morning Dennis.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Hi Murali.
Murali Gopal - Keefe Bruyette & Woods
Just a quick question on the SIV notes; I know you had a whole bunch of notes maturing at the end of March, and I am just wondering how much of that matured in how much went into receivership or can you just update us on what's the current total exposure to the SIV notes?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Sure. I mean we've had...
we did have some maturities in March just to give you, I guess a little more historical background. Since this began, we started with holdings of roughly $1.4 of these types securities back in let's say the end of September and October.
About 800 million of that has matured in March and I guess in the first quarter if you will about 240 million matured of that number. So, we have seen a lot these securities that we held from the beginning mature.
We currently have about 600 million of par value. We still hold about 600 million of par value of these securities and the bulk of which actually is made up of Cheyne and Victoria, the ones that are we have already recognized as a problem.
Murali Gopal - Keefe Bruyette & Woods
Okay, thank you.
Operator
Our next question in queue comes from the line of Tom McCrohan of Janney Montgomery. Please go ahead.
Tom McCrohan - Janney Montgomery Scott LLC
Hi Dennis.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Hi Tom.
Tom McCrohan - Janney Montgomery Scott LLC
The Cheyne and Victoria SIV, can you remind us what the underlying collateral is for those SIVs and when these non-cash charges that we are taking... you are taking around the quarter.
Is it because the collateral is not performing or is it still kicking off cash or is there some other reason why the net asset value is being impacted?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Generally, the information we have been able to get tells us that the underlying collateral is performing. The payments are being made on that collateral.
It's really just the overall market conditions that are driving down the market evaluations or assessments of market evaluation of that... all those underlying collateral instruments.
And the big issue is liquidity in the market that's having part of biggest impact on pricing. I think in...
if you look at Cheyne for example in most recent information we had, which is early April, about 82% of the portfolio is AA or better on the underlying collateral, about 89% is A or better. So the ratings although have, I guess in aggregate have gone down slightly, there is still fairly highly rated positions.
And Victoria, it's similar, 81% is AA or better and about 92% is A or better. So the underlying collateral seems to be holding up.
It doesn't mean there is not in charge of hard line of sight, we really can't get to the absolute underlying single mortgage that Mrs. Roberts has it in [ph] Ohio than maybe, one of the assets to tell four ladders down here.
But the information we are getting is still somewhat encouraging.
Tom McCrohan - Janney Montgomery Scott LLC
Any metric on like loan to value or FICO scores or anything like that connection with the mortgage of supporting both of the SIVs?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Again when you try to drill down on these types of securities to get all the one down to the actual underlying mortgage, it's quite a challenge.
Tom McCrohan - Janney Montgomery Scott LLC
Fair enough. Well, thanks for taking the question, and your comments were very helpful, thanks.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Verywelcome thanks.
Operator
Our last question in queue on this topic is comes from the line of Justin Hughes of Philadelphia Financial. Please go ahead.
Justin Hughes - Philadelphia Financial
Good morning, most of my question have been answered, but you said two follow-up questions. Do you know if there first lean mortgages or is there seconds or HELOC or subprime?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Again getting all the way down to that level of detail is not somewhat challenging.
Justin Hughes - Philadelphia Financial
Okay, and then secondly it look likes you've taken about 10% accrual rates, well, if you include the mark-to-market today, $61 million on your $600 million of exposure. What data point did you use to price those, is there an open liquid market for these?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
When it comes to securities that as followed mainly, as I've said in the past Cheyne and Victoria been a larger holdings we have, really is a fair value pricing.
Justin Hughes - Philadelphia Financial
How do you determine fair value?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
We work with our sub-advisor Columbia Asset Management, a subsidiary Bank of America. And they have a fair value model that we rely on.
Justin Hughes - Philadelphia Financial
Okay, so it would be like... it would be considered a level three if it's in a broker dealer.
You are estimating the value as there is no liquid market fees.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Correct
Justin Hughes - Philadelphia Financial
Okay, thank you.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
You are welcomed.
Operator
[Operator Instructions]. There are no further questions in queue at this time.
Panelists, please continue.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Thank you, I would now like to cover the investments in new business segment and the LSV segment. Activities in the investments and new business segment are focused on direct marketing to ultra-high net worth investors.
During the quarter, investments in the new business segments generated a loss of $2.8 million. This compares to a loss of $3.2 million for the first quarter of 2007.
The efforts in this segment continue to be centered on learning, developing, and delivering our life and wealth services to be ultra-high net-worth segments. The learning we gain and the services we developed from this process are then leveraged applicable to other assets distribution units in the company.
As you know, SEI historically has used the investments in new business segment as an incubator for new initiatives. We view the losses in this segment as an investment in future market opportunities and/or services.
You can expect losses in this segment to continue. I will now turn to LSV.
We continue to own approximately 43% of LSV asset management. LSV gives a market volatility had a challenging quarter of financial performance.
Earnings contribution to SEI from LSV was approximately $30 million in the first quarter 2008. This compares to a contribution of $31.3 million in the first quarter of 2007.
This year-over-year decrease was due primarily to a loss of assets from market depreciation. During the first quarter, LSV's net assets shrank approximately $5.8 billion.
We expect LSV to continue to be challenged by these volatile markets. However their investment process is well tested and their long-term performance record is strong.
This should help them recover when the market settle down. Revenues from LSV for the quarter were approximate $77.3 million.
This compares to revenues of $81.2 million for the first quarter of 2007 and $82.2 million in the forth quarter of 2007. Revenues were impacted by asset declines as discussed earlier.
On SEI's balance sheet of our reported cash and short-term investment of approximately $336 million, $78 million is attributable to LSV at March 31st 2008. Our reported receivables of $282 million; $87 million were attributable to LSV.
Liabilities are affected by the debt associated with our guarantee to the LSV employee group. This has reflected in both current liabilities of approximate $10.9 million and long-term debt of approximate $39 million.
I will now take any questions you may have on the investments and new business or LSV segments. Question And Answer
Operator
[Operator Instructions]. Our first question in queue comes from the line of Glenn Greene of Oppenheimer.
Please go ahead
Glenn Greene - Oppenheimer
Thanks; good morning, Dennis.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Hi Glenn.
Glenn Greene - Oppenheimer
Can you just talk about on the performance of LSV just sort of the asset flows, sort of just talking about the market performance versus the inflows over outflows?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Yes, there are... yes, asset losses in the first quarter that was pretty much 100% market depreciation.
There are... clients flows were essentially flat.
So, they are taking new clients money in as in the past, where they have closed on a lot of their products that gets our position now is already kind of selectively open.
Glenn Greene - Oppenheimer
So, that was my next question. Are they opening any of the funds that previously has been closed?
Unidentified Company Representative
Yes, selectively.
Glenn Greene - Oppenheimer
Okay, thank you.
Unidentified Company Representative
They have the capacity.
Glenn Greene - Oppenheimer
All right.
Operator
Our next question in queue comes from the line of Jeff Hopson of Stifel Nicolaus. Please go ahead.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay, I was going to ask the same thing about the products being open. So they are open, or they are not?
Unidentified Company Representative
I said they are selectively open.
Jeffrey Hopson - Stifel Nicolaus & Company
Selectively open.
Unidentified Company Representative
Yes.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay, great.
Unidentified Company Representative
We'll take new client money.
Jeffrey Hopson - Stifel Nicolaus & Company
Great, Okay. Thanks a lot.
Operator
Our next question in queue comes from the line of Tom McCrohan of Janney Montgomery. Please go ahead.
Thomas McCrohan - Janney Montgomery
Dennis, is there any particular front that seeing more underperformance than other front in LSV? I don't really know all the funds in detail.
But if you can elaborate on the average value for the... 5% for the quarter, but they clearly were down more than to the market depreciation for the quarter.
So, why would they underperforming the market depreciation this quarter? Maybe there are certain funds that are...
a multiple of the market appreciation for whatever reason, if you can elaborate on that, that'll be helpful.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
I think there are more than a large cap dive strategies with more impacted than some of their mid-cap and small cap products.
Thomas McCrohan - Janney Montgomery
Okay, all right; so, there was some of that. And you folks, when you consolidated LSV back in early '06 because of the guarantee of the loan, is there any level of ownership, where this would be de-consolidated and you talked about that in UK and say potentially...
if you consolidate this ownership draft to a certain percentage, if we don't really kind of elaborate on that certain percentages, so...
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
It's really when our risk of ownership drops below 50%. So, at the end of rule, that triggers a consolidation is more of a risk base room.
Thomas McCrohan - Janney Montgomery
Okay.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Then technical ownership... actual ownership rule.
And as you remember, we bet last transaction was about 8%, and just over 50% in total risk. So, once our risk drops below 50, that's when we would be consolidating.
Thomas McCrohan - Janney Montgomery
This is associated with the outstanding loan, you mean?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Yes and/or any another shift in ownership.
Thomas McCrohan - Janney Montgomery
Okay, because they are really paying down that loan pretty quickly, right?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
They are paying it down, yes.
Thomas McCrohan - Janney Montgomery
So you are getting pretty close to that risk, going below 50%.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
It's really not a pro-rata, if you are thinking about in terms of a pro-rata event?
Thomas McCrohan - Janney Montgomery
Yes.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
It's not a pro-rata event on the loan, it's all or nothing.
Thomas McCrohan - Janney Montgomery
Okay. Is there...
could you quantify or speak to... is there a chances could be deconsolidated over the next 12 months?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
No, I wouldn't say that's possible through the loan being repaid.
Thomas McCrohan - Janney Montgomery
What... can we...
maybe help us understand what events would then upside the loan being repaid with... because you consolidated because of the loan?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
If we sold 10% of our holdings that would reduce our ownership by 4%, what not that we are not planning to; I am just saying that you are asking for what are other scenarios that would result in deconsolidation.
Thomas McCrohan - Janney Montgomery
But before you have been provided a guarantee for the loan, on 43%, and it was deconsolidated. The event that consolidated was the loan, but now you are saying that deconsolidated your ownership as to drop 10% [ph].
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Hi, Tom. The loan represented 8%.
8 plus 43 is 51; to the extend that the 51 in whatever way SIV perform drops below 50. That would result in our deconsolidation.
You understand that? So, whether it's a 43 order drop or the 8% were to go away.
Thomas McCrohan - Janney Montgomery
But does the 8% go away if you repay the loan?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Well, it will, yes.
Thomas McCrohan - Janney Montgomery
So then you would drop below 50%.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Correct. But your question was this year, and my comment was it is highly unlikely that the loan will be repaid this year.
Thomas McCrohan - Janney Montgomery
Got it. Thank you.
Operator
Our next question comes from the line of Murali Gopal of KBW. Please go ahead.
Murali Gopal - Keefe Bruyette & Woods
Hey Dennis, I know you said the LSV funds are selectively open now, but can you give us an idea, is this more second quarter event or is this something that happened in the first quarter, and just in terms of timing when they started opening of the funds selectively?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
It's more... I can't really say there is a firm date, where they hung out.
I think it's just that they have actually moved into during the first quarter.
Murali Gopal - Keefe Bruyette & Woods
Okay. And just in terms of looking at the operating margin at LSV, it looks like it's held up pretty well.
Is it more just a function of lower accrued compensation?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Yes, approximately there was a one-time expense in the first fourth quarter brought the margin down a little bit.
Murali Gopal - Keefe Bruyette & Woods
Okay, thanks.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
I didn't repeat itself in the first quarter.
Murali Gopal - Keefe Bruyette & Woods
Okay. Thanks.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
So, there is more timing on that than anything.
Operator
Our next question comes from the line of Glenn Greene of Oppenheimer. Please go ahead.
Glenn Greene - Oppenheimer
Yes, I actually had a very similar question to the previous one, but I was just trying to understand the expense flexibility on the LSV side if there is sort of natural buffers like the core SEI business model has given that sort of revenue drop 5 million sequentially, but profits barely dropped; so just trying to get some clarity on that.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Yes, little bit less of I think it also had to do with expenses in the fourth quarter.
Glenn Greene - Oppenheimer
How material is... were those one-time expenses in the fourth quarter?
Unidentified Company Representative
Not that material to our earnings, Glenn.
Glenn Greene - Oppenheimer
But tell at least [ph].
Unidentified Company Representative
Well, again they were material.
Glenn Greene - Oppenheimer
Okay, all right. Thank you.
Operator
There are no further questions in queue at this time. Panelists, please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Thank you. And now I am going to turn it over to Joe Ujobai to discuss private banking segment, Joe?
Joseph Paul Ujobai - Executive Vice President of Global
Great; thank you Al. Today I would like to review our financials and give you an update on our market activity.
As of financial update, revenue was just over a $107 million by 10% from the year ago quarter that decline approximately 4% from the fourth quarter of 2007. Revenue growth versus the year ago quarter was due to a net increase in assets under management from distribution partners, primarily in non-U.S.
markets, as all as an increase in our recurring wealth processing revenue both in the U.S. and the UK.
Revenue declines from the fourth quarter of 2007 was due to those market depreciation, as well as some high network client redemptions in our asset management business. I'd like to remind you that we also have relatively strong onetime revenues in our U.S.
investment processing business in the fourth quarter of 2007. Average assets under management for the quarter were $19.6 billion, an increase of 10% from the year ago quarter, but a decline of $2.2 billion from the fourth quarter of 2007.
The decline in average assets equaled approximately 50% in market appreciation, and 50% in net client redemptions. Profit increase from the year ago quarter by approximately 5.8% to $20.9 million.
Profit declined by approximately 7.4% from the fourth quarter 2007 due to the declining revenue and a 3.5% increase in expenses. Increased expenses were primarily due to cost associated with a continued sales and marketing, build out maintenance and operational deployment of the Global Wealth Platform.
This segment accounts for the majority of the overall expense of the platform. Margins for the quarter was 19.5%.
As I had mentioned to in recent calls, margins will bounce around recent levels, as we expect to have continued pressure in this segment due to the launch of Global Wealth Services in Europe and the U.S. Longer-term, we expect strong margins as we are making significant investments to go and scale our private banking business.
I'd now like to update you on market activity. On the wealth processing side of Global Wealth Services, we continue to build out the solution as well as the client pipeline focusing on the UK and the U.S.
Both markets have closely watched our progressed with the first client, and we are actively engaged on our business discovery process with key prospects. In the UK, we are seeing increased interests from large non-bank wealth managers, a fast growing segment of the market.
These firms typically manage over $1 billion to more than $10 billion in assets by providing discretionary invested management services to net asset [ph] and high net worth clients. This business segment is growing...
is quickly moving towards models based discretionary investments solutions, so their business model did nicely with the strategic functionality of the Global Wealth platform. We are increasing our sales focus and activity in this segment.
In the U.S., we signed three community banks for our TRUST 3000 BSP solution that will convert to SEI this year. Increased sales activity in the U.S.
community banking segment is based on expanded market interest and our long-term Global Wealth Services strategy. As Al mentioned, we continue to deliver additional functionality and able to release an important platform upgrade to support continued operational efficiency, scalability in UK tax and regulatory changes.
We expect an additional efficiency release in May and a significant release later this year delivering investment management functionality, which is key to the value proposition of Global Wealth Services. While we are building the wealth processing pipeline, we are making progress with the build out of our worldwide investment management business, which is also supported impart by the Global Wealth Platform.
We are focused on high growth Wealth Management markets and are actively expanding our distribution footprint in these markets. For example, in the Middle East, we opened our local office in Dubai and launched our first distribution agreement for the Commercial Bank of Kuwait, CBK.
CBK is one of the largest banks in Kuwait with extensive coverage of the institutional and also high net worth market. We will provide a churn key investment solution for their clients for their newly formed private bank.
We recently entered to a second agreement with another one of the regions leading banks to also provide a churn key asset management solution for private clients. This month, we signed a distribution partnership with Renaissance Investment Management, RIM.
RIM is one of the largest independent investment management companies in Russia and a commonwealth in independent states. Our partnership provides RIM an opportunity to globally diversify their clients portfolios by jointly creating a series of proprietary wealth management solutions distributed to their private banking offices, primarily in London and Geneva.
Earlier this month, we announced our first distribution relationship in Mainland China, the leading wealth fund manager, Yinhua Fund Management Company. We are working with Yinhua to launch one of China's first manager of manager QDII funds, a qualified domestic institutional investment fund.
QDII allows mainland Chinese investors to diversify their assets in the foreign securities markets. Yinhua distributes to local brokerage firms and bank including the Bank of China.
China holds great long-term opportunity for us, and we are pleased to be involved in this venture. We are in the early stages of the distribution agreements agreement and market sentiment amongst private clients remains very cautious.
Although market volatility has effected end investor decision making and cash flow, we are launching important investment management distribution relationships in high gross markets, which I believe will position us to take advantage of the eventual change in investor sentiment. In summary, Global Wealth Services, our Global Wealth Services Solution will provide a strategic infrastructure to help private banks and other wealth managers grow and keep pace with the rapidly changing industry.
We are building a comprehensive technology and services solution to take advantage of the worldwide opportunity. Although the current markets are challenging, we are focused on the continued launch of our solution and the growth of our business.
Are there any questions? Question And Answer
Operator
[Operator Instructions]. And our first question in queue comes from the line of Jeff Hopson of Stifel Nicolaus.
Please go ahead.
Jeffrey Hopson - Stifel Nicolaus & Company
Hi Joe. couple of questions here; the redemption activities that you saw in the quarter, is this the typical type of short-term behavior from clients as opposed to any permanent changes, how would you judge that?
And then tell us a little bit about the discovery process that you are undertaking with private bank clients and how long typically that would take before potentially the next stage?
Joseph Paul Ujobai - Executive Vice President of Global
Okay; thanks, Jeff. The answer to your first question is this typical, we are relatively new, really the last three or four years that we have focused on distribution through non-U.S.
or global clients thought banks that typically care to high net worth, ultra-high net worth investors. So I would say through ultra-high net worth investors to private banks outside of the U.S.
we don't have a lot of experience with a down market or a more volatile market. And so I think what we are seeing is that some of our bank clients are some the end investors particularly once that invested more recently say in the 2006-2007 time frame that only saw sort of fairly significant upside of the markets have gotten a bit nervous and have typically pulled some of their money out of the longer-term markets.
And so we believe that this is closely based on market sentiment, and our solutions are long-term valid strong investment solutions and we would expect to see as market sentiment changes and continue to increase in growth of our invest margin business to these distributors.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay.
Joseph Paul Ujobai - Executive Vice President of Global
As far as the discovery process goes, we are getting increasingly more inefficient in the discovery process particularly as the platform is up and running, and the processes are in place. And so the real activity behind the businesses discovery is to go into a prospect to be a private bank or one of these non-bank wealth mangers that I mentioned better understand their business strategy, better understand how they are currently transacting or running their business, and then identifying how we can take the set of services that we've built that are underpinned by the platform and line up that business model or move that business model towards the infrastructure that we built.
And so we are getting more efficient at these. I would say that the first couple took six months to a year and we are actively working to lower that time period and do these things more quickly.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay, and the terms of your discussions, any sense of client reaction to the markets slow down of interest, pick-up of interest, anything you can give us there?
Joseph Paul Ujobai - Executive Vice President of Global
I would say that... our clients are ultimately invested managers with the private banks or these non-bank wealth mangers.
So if you look at the banks obviously we all know the challenges that banks are facing world wide, and so that certainly can be distraction to making more strategic decisions, given what's happening with banks and credits. With the non-bank wealth managers, certainly those organizations are typically seeing the depreciation of their client assets given what's happening in the capital markets around the world.
But I think that ultimately volatility will bode fairly well for us in the longer-term, because it really helps the banks get or the non-banks or any of these wealth managers get focused on their... the strategy of their business to gather more clients, to have a closer relationship with their clients, and really refocus their efforts on discretionary portfolio for their clients as well refocus their efforts on gathering new clients and away from infrastructure and the type of services that we can provide to them.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay; great, thanks.
Operator
Our next question in queue comes from the line Murali Gopal. Please go ahead.
Murali Gopal - Keefe Bruyette & Woods
Good morning, Joe.
Joseph Paul Ujobai - Executive Vice President of Global
Good morning.
Murali Gopal - Keefe Bruyette & Woods
Most of my question have been answered, but just quickly, in terms of building out these service infrastructure for the global wealth platform and the spending related to that, how far along you think you are in terms of the spending? Do you think the spending related to that is already peaked or you expect that to be some time in 2008?
Joseph Paul Ujobai - Executive Vice President of Global
We will continue to spend on the technology, they are the platform. We mentioned earlier some releases this year, which are around continued operational efficiency and scalability of the platform.
So, we obviously overtime expect to add significant amount of business to the platform. So, once you continue out the infrastructure to scale, we talked about it significant release towards the end of the year around more asset management functionality.
We do have to build out more U.S. functionality around taxes and connectivity in the U.S.
market, and so we will continue to invest significantly in the platform this year and certainly in the next year.
Murali Gopal - Keefe Bruyette & Woods
Okay and in terms of your sales focus, when you are talking to your prospective clients especially in Europe, typically who do you see as a competitor that probably prospect of clients is looking at in addition to your Global Wealth Platform?
Joseph Paul Ujobai - Executive Vice President of Global
Atbanks, we see typically... at the large banks, we typically see sort of internal capability.
So large goal of banks would have significant technology and operations resources internally that have often provided these infrastructure services to the private banks. I would say sort of the focus wealth manager, the private banks that are primarily focused on wealth management, they typically have in-house technology platforms that they acquired and are often legacy platforms that are quite old, and with some of these non-bank wealth managers, there has been an attempt over the last couple of years to piece together technology that's available in the market and they try to integrate that to work in this discretionary and moving more and more towards the model based solution.
So, it's typically technology that these organizations are trying to integrate, then many of them haven't been very successful integrating these in a scalable manner. And so there's number of different competitors in-house versus buying technology, trying to get the custodians to do more for them around individual client management and now part of the process is a lot of these organizations are distracted by the market conditions and so a competitor is just the other issues facing the business.
Murali Gopal - Keefe Bruyette & Woods
Thank you.
Operator
There are no further questions in queue at this time. Panelists, please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Thank you, Joe. Our next segment is investment advisors and Wayne Withrow will cover the segment.
Wayne?
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
Thank you. Al.
Revenues for the first quarter decreased $1 million with 2% from the year-ago period while our average assets on the management during the quarter were down $128 million or less than one half of 1% from the first quarter of 2007. The decline in revenue was more pronounced than our decline in our average assets under management due to a decrease in the average basis points we earn on our managed assets.
I believe much of this decline reflected advisors and investors becoming more defensive in their portfolios as evidenced by a more than $1 billion increase in our money market balances for March 31st, 2007 to March 31st, 2008. The good news is we retained these assets even if they are in lower field products.
Cash flow for the first quarter of 2008 was a negative $170 million. Disbursements totaled $1.83 billion and receives totaled $1.66 billion.
Both historical... higher historical disbursements and lower historical receipts contributed to our negative cash flow.
Investor uncertainty was evident in both of these totals. Profits for the quarter decreased 9% [ph] for the year-ago period.
Lower profits were primarily the result of a decline in our revenues and increases in expenses associated with the global wealth platform. Now while investor uncertainty and declining markets have had a negative impact on our short-term financial results, our underlying business fundamentals remain strong.
We continue to sign new advisors and our pipeline of activity continues to grow. In addition, we remain committed to growing our existing advisors with one example being the launch of the SEI million-dollar producer program during the first quarter.
Over 60 high potential advisors are participating in this year long coaching program designed to help them increase new business development. Participants in this programs had been generating positive cash flow even in this challenging market environment.
Also keep in mind that while uncertain markets may have short-term financial results challenging, they also allow us to reinforce the value of our outsourcing solution to advisors. Our tax management assistance proposal generation tools, marketing campaigns designed to calm, the worried and investor and our full array of portfolio strategies from aggressive to conservative are just some of the tools advisors can benefit from in these markets.
This should leave us well positioned in the advisor marketplace. In summary, declining market valuations and investor uncertainty have had a negative impact on our first quarter financial results what we are using these negatives to strengthen our long-term potential.
I will now entertain questions. Question And Answer
Operator
And our first question in queue comes from the line Jeff Hopson of Stifel Nicolaus. Please go ahead.
Jeffrey Hopson - Stifel Nicolaus & Company
Hi Wayne. Can you remind us of what your goals would be in terms of new advisor, activity and then in this environment is it harder or easier to add advisors?
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
Well, your first question, I don't think we've set a specific goal, at least publicly, we have internal metrics. And I usually update everyone so that at the end of the year as to where we are into advisors.
So, I don't think to give you a specific number for that. I will tell you in this environment, I think our ability to sign new advisors is not...
is really unaffected by the market or maybe even a little bit more positive, because it's their challenge and their business equation. They are looking at different ways do their business and different ways to grow their business profitably and challenging markets are sort of a catalyst to have them look at that.
You need to remember that outsourcing... our outsourcing solution is a different value proposition for advisors.
So they need to be looking at different ways to do business, so generally this is... that's good.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay, great. Thanks a lot.
Operator
And we have a question from the line Murali Gopal. Please go ahead.
Murali Gopal - Keefe Bruyette & Woods
Good morning, Wayne.
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
Good morning.
Murali Gopal - Keefe Bruyette & Woods
Just very quickly in a tough revenue environment such as the first quarter, you had pretty good improvement in operating margin, which is kind of... little bit surprising.
Can you just comment a little bit in terms of how... what lead to the improvement?
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
I don't know whether that we really had much improvement in the operating margins. I think actually our margins in the first quarter were a little bit lowered than our historical standards, which reflects the decline in the asset values or shift in the lower fee products and some increase in the some expense line.
So that we reduced expense. If you look sequentially, we took $2 million in expenses out, which is the good news.
Murali Gopal - Keefe Bruyette & Woods
Okay.
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
The bad news is the decline in revenue was more pronounced than the decline in expenses. But we continue, as Al said to look at our expenses daily.
Murali Gopal - Keefe Bruyette & Woods
Okay. And just also very quickly, I know about a year back, you talked a little bit on the distribution focused investment strategies, and at that point you sounded pretty upbeat on the prospects of the strategy.
Could you just provide us an update on where that stands, and what do you think about that?
Unidentified Company Representative
Yes, I think that we are beginning to get traction on a distribution focus strategies in the market reception to that; product line is pretty good. So, if I gave this percentage increases, the numbers would be pretty phenomenal, but in terms of the overall, almost $40 billion in assets, it's still really insignificant as it reflects in our financial results.
So, the jury is still out, it's continuing to grow month-over-month, but we really haven't reached a critical math yet.
Murali Gopal - Keefe Bruyette & Woods
Okay, thanks.
Operator
Our next question in queue comes from Tom McCrohan. Please go ahead.
Thomas McCrohan - Janney Montgomery
Hi Wayne, are you seeing any directional changes in April as far as you are the RAA's [ph] client is getting more defensive.
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
I mean if you look sort of... try to look over three week period, I would say that the market uncertainty we saw in the first quarter has continued in the second quarter, and I thinks it's more the same for us.
Thomas McCrohan - Janney Montgomery
When they get more defensive, assuming that means, they're putting something cash. Are you guys capturing that for your liquidity funds at line item in the asset balances?
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
Ask that again, Tom.
Thomas McCrohan - Janney Montgomery
When these end clients get more defensive, I guess that assumes a strong equity has been grown into cash. And are you...
the SEI capturing that cash investment?
Unidentified Company Representative
Yes, we are. So if you look at, while our total assets were down, if you look at sequentially, our total assets were down, our liquidity assets sequentially were up 18%, if you look quarter end-to-quarter end
Thomas McCrohan - Janney Montgomery
Yes.
Unidentified Company Representative
We have all that in the earnings release, Tom. If you go back, it's been one [indiscernible] but we...
but what you're pointing out is we are seeing that.
Thomas McCrohan - Janney Montgomery
Great. So, typically there is not much leakage if end client of a registered investment advisor sell some large cap portfolio, goes into cash, then the cash are they going into like in SEI bond, right?
Wayne Montgomery Withrow - Executive Vice President, Investment Advisors
I think we are seeing a lot of clients move out of longer-term investments in the cash. Some may be leaving us, but we are also seeing if you look quarter-over-quarter Q1 to Q1, it's $1 billion increase and we are tapping those assets.
Thomas McCrohan - Janney Montgomery
Great, thank you Wayne.
Operator
There are no further question in queue at this time. Gentlemen on the panel, please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Thank you, Wayne. And our next segment is the Institutional Investors segment.
I am going to turn it over to Ed Loughlin to discuss the segment. Ed?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Thanks Al, good morning everyone. The first quarter was a challenging business environment for the institutional segment.
Record sales of $3.4 billion and help the new clients funding of $1.7 billion were essentially massed by the volatile and negative capital markets. I am going to first speak about the financial results for the first quarter compared to the year ago period, and due to the negative capital market, I am also going to touch on progress that we've made compared to the fourth quarter 2007, and then conclude with sales results.
On the financial side, strong new client funding throughout the entire year has helped to dampen the impact of negative capital markets on revenue growth. Revenues approaching $51 million grew 9% compared to the first quarter of 2007.
Revenues for the first quarter compared to the fourth quarter of 2007, declined 4% despite strong new client fundings during the quarter. Profits for the first quarter increased 11% to over $20 million comparing favorably to the year ago period, but were essentially flat to the fourth quarter of 2007.
Margins of 40.5% represent a slight increase for the quarter compared to both the year ago period and also the fourth quarter. Worldwide Institutional Asset balances were also negatively impacted by the capital markets.
Assets decreased $1.2 billion to $48 billion in total, compared to the fourth quarter of 2007, despite the significant new client fundings. The backlog of committed, but unfunded sales was $2.8 billion at quarter's end.
We anticipate the majority of the current backlog assets to fund during the second quarter. I am pleased to announce the record sales quarter of $3.4 billion in new client assets.
A large industry wide pension plan in the Netherlands, totaling $1.6 billion was a significant new client this quarter. In addition, we were successful securing relationships with clients in all of our target markets.
Changing pension regulations and accounting standards as well as the more complex investment environment continued to be positive catalysts for business growth and enable us to build a healthy pipeline. However, our past experiences tell us that negative volatile capital markets coupled with an uncertain business environment tends to lengthen the sales cycle and slow down institutional decision making.
We continue executing on our long-term strategy of enhancing and extending the reach of our pension in a downward solution and also initiating new business discussions with perspective clients. These activities will serve us well in building the long-term growth and value of the business for SEI.
Thank you very much and I am happy to entertain any question.
Operator
The first question in queue comes from the line Glenn Greene. Please go ahead.
Glenn Greene - Oppenheimer
Hi Ed, good morning.
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Hi Glenn.
Glenn Greene - Oppenheimer
So, market factors aside you actually had a pretty astounding quarter from sales activity, and even if you could strip out sort of the one big client, you were certainly above trend. And certainly with a back up of sort of a challenging market in probably sales cycle being somewhat extended is there anything that sort of happening in your market, what sort of explains the sales success and do you thinks it's sort of sustainable or is it sort of an anomaly in the quarter?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Okay, I would say that what we continue to see, if you were to go back and look at the trend line, what we continue to see is continued market acceptance, okay, for the outsourcing proposition. We have globalized that activity over the last couple of years, so we are starting to see this to be something more than just in the U.S.
So, I think that's all positive. I think the other thing that I've spoken about is the fact larger investors are seeing this as a very good alternative.
So, we are certainly delighted with an investor of this size. This is not the largest investor that we have, which is probably the good news.
It is probably the largest single decision, but we have other investors of this magnitude, where we have plans and multiple jurisdictions to the U.S, Canada the UK multiple locations. So, I think the trends are very positive for the offering that we have.
But I would point out though that I think institutions and we've have seen this in the past, they are going to be focused probably on the impact of the environment on their business. And so I think for them to try to get to a better place for managing these pensions or doubt [ph] assets I think that sometimes takes the back seat to more pending business decisions.
And so I think we might just see a slow down in decisions. But the good side of that trend is we have not seen a slow down in the willingness for prospects to take new business meetings.
So the ability for us to continue to get meetings and to initiate new calling activity continues. So, I think that's the healthy sign.
Glenn Greene - Oppenheimer
What are the prospects for some other larger deals, going out of few quarters what not?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Well, I mean we have focused on large we have focused on our core, so we are trying to do as much as we possibly can to move all of these market segments that we are in forward.
Glenn Greene - Oppenheimer
Okay, thank you.
Operator
Our next question comes from the line of Jeff Hopson. Please go ahead.
Jeffrey Hopson - Stifel Nicolaus & Company
Hi there, Ed. Just a question from modeling purposes, typically newer or larger business might have lower fees attached to...
is that a general rule that we should follow?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Yes, I mean as you know our fee schedule is such that the more asset that the client gives us, the lower their effective fee would be.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay.
Edward Doyle Loughlin - Executive Vice President of Global Institutional
So yes, that's correct.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay. And what were the actual fundings in the first quarter, did you give us that?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
1.7 billion.
Jeffrey Hopson - Stifel Nicolaus & Company
1.7 billion; okay, great. Thanks a lot.
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Sure.
Operator
And the last question in queue at this time comes from the line of Murali Gopal. Please go ahead.
Murali Gopal - Keefe Bruyette & Woods
Good morning, Ed.
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Good morning.
Murali Gopal - Keefe Bruyette & Woods
Just very quickly could you compare the growth trends that you are seeing in the U.S. versus non-U.S.
market. Are you seeing a lot growth in terms of also the prospects more interest from non-U.S.
prospects?
Edward Doyle Loughlin - Executive Vice President of Global Institutional
I guess I would suggest that the way you have to look at it is the U.S. market continues to be the biggest market opportunity on a world wide basis.
So, proportional to the size of the market, I think we are seeing interest in all of these particular markets that we are operating in. So, I think I would probably send you down the wrong path if I were to talk about one being more interesting right now than another.
It's pretty much a relationship to the size of the market opportunity that's how we see it kind of playing out.
Murali Gopal - Keefe Bruyette & Woods
Okay, thank you.
Edward Doyle Loughlin - Executive Vice President of Global Institutional
Sure.
Operator
There are no further questions in queue at this time, please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Our final segment today is investor mangers, and I am going to turn it over to Steve Meyer to discuss the segment.
Stephen P. Meyer - Executive Vice President
Thank you Al. Good morning everyone.
The investment manager segment financial results for the first quarter of 2008 include a growth in revenue and profit from the same quarter a year ago for the slight decline in both revenue and profit from the prior quarter. Primarily due to the loss business we discussed last year.
However, we see this as a temporary set back after posting increased revenue in profits over the prior eight consecutive quarters. Specifically for the first quarter of 2008, revenues for the segment total $36.5 million, a $2.6 million or 7.4% increase compared to the first quarter of 2007.
The growth was primarily due to net client fundings and existing client growth. Revenues compared to fourth quarter of 2007 were down approximately 4.7%, mainly due to loss business that left at the end of 2007.
Our quarterly profit of $10.5 million was up approximately 16% from the same quarter a year ago. However, it was down 8% from the last quarter as we continue to absorb and redeploy the fixed cost of the accruements in loss business.
Third party asset balances at the end of the first quarter of 2008 were $225 billion or $9.9 billion higher than at December 31st of 2007. Approximately $13.4 billion of this increase is attributable to additional net client funding and additional paid in capital, which was slightly offset by a negative $3.6 billion in market appreciation.
In the first quarter of 2008, we had a strong new business development quarter with new business sales events totaling approximately $6.1 million in annualized revenue. These events included deals across all of our solutions and represent a good diversity between alternative investment products and traditional loan only investment products.
Additionally, we had a good re-contract in quarter with our existing client base by extending several key existing client relationships. From a market and industry standpoint, we have been able to maintain an actively and healthy pipeline.
While we see strong momentum in outsourcing by investment managers and continue to move key agendas forward, the current volatility and reduced confidence in the capital markets is starting to delay some decisions and some mangers are pushing their funding in the short-term. While this market turmoil logically pushes many investment managers to rethink their infrastructure and look to set themselves for the future, our experience indicate that it does cost the sales cycle to lengthen on average.
However as investment mangers position themselves for their future, we feel that our strategic direction and valued proposition of total operational outsourcing not only allows us to differentiate ourselves, but also drive some of the strengths and benefits of our solution to investment mangers at an important inflection point. This combined with global opportunity for growth fuels our confident outlook for the future despite the short-term pressures of current market conditions.
I will now turn it over any questions you may have. Question And Answer
Operator
[Operator Instructions]. And we have a question from the line of Jeff Hopson.
Please go ahead.
Jeffrey Hopson - Stifel Nicolaus & Company
Hi, just a question; just to make sure that the big jump in client's assets and our headwind [ph] that's distinct from the $6.1 million of new business, is that fair?
Stephen P. Meyer - Executive Vice President
That's fair.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay and any particular reason, I mean was it in isolated event or two that drove the big jump in client activity and is this at historical fee rates or is it at any change of fee rate?
Stephen P. Meyer - Executive Vice President
I'd say the jump was, if you remember we had a pretty good strong third and fourth quarter last year as far as new events. And I'd say despite the losses that came out at the end of the year, we did have fundings of deals that we sold last year.
So I'd say it was kind of long than normal cycle, there wasn't any one particular thing to set out. And it was at...
I think historical in your fee rates.
Jeffrey Hopson - Stifel Nicolaus & Company
Okay, thanks a lot.
Stephen P. Meyer - Executive Vice President
Sure.
Operator
There are no further questions in queue at this time.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Thank you Steve. And I would like to now turn it over to Kathy Heilig to give you a few company wide statistics.
Kathy?
Kathy C. Heilig - Chief Accounting Officer, Controller
Thanks Al. Good morning everyone.
I have some additional corporate information about this quarter. First quarter cash flow from operation is $55.8 million or $0.28 per share.
First quarter free cash flow, $33.3 million or $0.17 per share. First quarter capital expenditures excluding capitalized software $5.5 million.
Capital expenditures for the remainder of 2008 excluding capitalized software are expected to be between $20 million and $25 million. In addition to that, we expect to start sometime this year, expansion of our additional facility and that in total will be about $8.5 million.
Tax rates for the first quarter 2008 was 37.1%; for the fourth quarter of 2007, it was 36.7%, we expect that out tax rate to be between 37% to 38%, but it will vary by quarter. The accounts stable balance at March 31st, 2008 was $10.1 million.
Then also, we would like to remind you that many of our comments are forward-looking statements, and are based upon assumptions that involves risks and in that financial information presented in our release and on this call is unaudited. Future revenue and income could differ from expected results.
We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for description of various risks and uncertainties that could effect our future financial results.
Now please free to ask any other questions that you may have. Question And Answer
Operator
Our first question in queue comes from the line of Murali Gopal. Please go ahead.
Murali Gopal - Keefe Bruyette & Woods
This is the question for Dennis. Dennis when I look at your expense growth, it looks like it's been pretty well controlled.
And I am looking particularly at your compensation expense, which has been more or less flat to slightly down, even though revenues have been growing year-over-year. Can you just talk a little bit about, is it all related to incentive accruals, or what's going on there?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
Well, a big portion of our compensation expenses driven by incentive compensation versus fixed salary type cost. So, performance of that company against our internal goals or compensation certainly would affect that line item.
So, given the first quarter and how we came out... certainly we are able to reduce costs in that area based on our performance so far.
Murali Gopal - Keefe Bruyette & Woods
Right. But if in future quarters the performance is much better than expected, this is going a kind of reverse, so that I mean you are going to...
it's going to capture to be better than expected performance, I guess?
Dennis J. McGonigle - Executive Vice President and Chief Financial Officer
All of our employees hope so.
Murali Gopal - Keefe Bruyette & Woods
Okay, thanks.
Operator
[Operator Instructions]. Ladies and gentlemen at the panel, there are no further questions in queue.
Please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Thank you Kathy. So, ladies and gentlemen, despite some of the external short-term uncertainties we've faced, our transformation has been steady and while we have a lot yet to accomplish.
We continue to make important strives. And we remain excited about what we are building.
One last thing you all are invited to our Annual Investor's conference held this year on June 3rd and 4th. Please save those dates, and a formal invitation will be sent to you in the next couple of weeks.
And so if there is any other question now would be the time before we sign off.
Operator
We have a question from the line of Justin Hughes of Philadelphia Financial. Please go ahead.
Justin Hughes - Philadelphia Financial
Thanks for taking my follow up. I just have one follow question on this SIV issue.
You said it's not very clear what the underlying collateral is, or what the credit worthiness of the borrowers are. And so I was just wondering what input go to that Columbia model to estimate the ultimate realizable value of 90%.
We all know that collateral is in the final rates. [ph]
Unidentified Company Representative
Well, I guess I would first correct you that your assumption at the underlying value at 90% is the value. I think you are using the aggregate number with the aggregate par position and terming that.
I think that part is not quite accurate to begin with, but the model they use looks at the assets classes, sub asset classes, if you will the types of collateral that are held, so whether it's residential mortgages or commercial mortgages or asset backed securities, it takes into account kind of the aggregatemarket impact on those classes. They are underlying sub-class and use of that is one portion of their models.
They also look at any pricing available in the market, the reporting pricing source is that are putting up prices on specific pieces of collateral and then add their judgment on top of that.
Justin Hughes - Philadelphia Financial
Okay, so Columbia does have breakout of what the underlying assets are,
Unidentified Company Representative
Yes, by category. Well, my comment was that it's very difficult to get to is the actual four layers down underlying Dennis McGonigle mortgage in Pennsylvania; that's what is difficult.
Justin Hughes - Philadelphia Financial
Can you just give us the major buckets and what the breakout is like residential mortgages versus commercial?
Unidentified Company Representative
Well, as I mentioned, I gave you the credit quality. The current credit quality of these underling securities and they kind of get into more detail...
for example... more mortgage backed securities and Cheyne are in the mid 30s, but kind of go through that earlier by items that just doesn't necessary the...
Justin Hughes - Philadelphia Financial
Will be in the 10-Q maybe?
Unidentified Company Representative
Now that will be published in the 10-Q.
Justin Hughes - Philadelphia Financial
Okay.
Operator
There are no further questions in queue. Ladies and gentlemen of the panel, please continue.
Alfred P. West Jr. - Chairman and Chief Executive Officer
Well, thank you all for joining us today. We really appreciate it you doing that; and have a great day.
Thanks a lot.
Operator
Ladies and gentlemen, today's conference call will be available for replay for today at noon Eastern Time until June, 23rd, 2008 midnight of that day. You may access that conference by dialing 1800-475-6701 and entering the access code 918889.
If you're dialing from an international location, you will need to dial 320-365-3844 and the access code 918889. Those dial-in numbers once again are 1800-475-6701, and the international dial-in is 320-365-3844 and the access code for both numbers is 918889.
Once again, I'd like to thank you for your participation on behalf of the day's panelists. And thank you for using AT&T Executive Teleconference.
Have a good day; you may now disconnect.