Podcast: Going public: How it started, how it’s going
In this episode of The Intersection, our Chairman and CEO Alfred P. West Jr. discusses the decision to take SEI public in 1981, during a time of economic uncertainty.
Podcast: Going public: How it started, how it’s going
Episode 16: Going public: How it started, how it’s going
Leslie Wojcik sat down with Al West Jr., Carmen Romeo, Bill Doran and Jeff Klauder to reflect on a very special milestone: the 40th anniversary of our public listing on NASDAQ. Listen as they reminisce on the company’s history—and share the keys to achieving staying power in the ever evolving financial technology landscape.
Enjoy episode 16.
Speaker 1: Hi, everyone. Thanks for joining us back at The Intersection, a podcast that brings you candid conversations with members of our community and leaders in our industry. Please note that nothing in the presentation is a recommendation to buy or sell any securities. Additionally, please keep in mind that past results are not an indicator or guarantee of future performance. Enjoy today's episode.
Leslie Wojcik: Hello and welcome. I'm Leslie Wojcik, head of global communications at SEI. Today, we're podcasting in honor of a very special milestone, the 40th anniversary of our public listing on Nasdaq. The leaders at SEI made a really bold decision to move forward with an initial public offering on March 25, 1981, as experts warned of a pending stock market crash. We have some very special guests with us today to talk about that day in 1981. Gentlemen, welcome. I would love it if each of you could briefly introduce yourself to our listeners and share a little bit about your role or relationship with SEI.
Al West: Hi, I'm Al West. I'm Chairman and CEO of SEI Investments. And I have been since 1968, and I certainly was this way when we went public at '81. I've never had a promotion as long as I've been at the company.
Leslie Wojcik: Well I'd say you've got a pretty important job, Al.
Carmen Romeo: Hi everyone. My name is Carmen Romeo and I joined the company in 1977 after spending about nine years with Arthur Anderson and Company, a CPA firm. And I've been with the company since that time. I retired to 15 or 16 years ago, but at that time I was the Chief Financial Officer of the company and had a lot to do with taking the company public. And I'm still a member of the Board of Directors of SEI.
Bill Doran: I'm Bill Doran. I am a board member. I first ran across SEI in 1969 or '70. I was a young associate lawyer at Morgan Lewis. I wanted some corporate work that they assigned me to SEI. So I've been around since almost the inception. I've watched Al, who never got a promotion, never got an office either, but it's been a pretty exciting trip to watch. And I was on the board from about '72 to about the time Carmen joined and we went through a buy-out of one big shareholder. He was replaced by this venture capital group, and less than two years later SEI went public and set the stage really to buy out the venture capital group.
Al West: I was there when the Bill joined a SEI, I was there a little bit before that. Morgan Lewis incorporated us in 1968. And at that time they assigned a young man to help our company. And he was very particular and very great at detail, but he never saw the big picture. So, I went back to the partner at Morgan Lewis and says, "You got to give me somebody else. I'm trying to. he's trying to clean our act up and I'm trying to survive. Can't do them both." And so they gave me Bill, and Bill's been a member of SEI and that entire time from about '70 on.
Leslie Wojcik: Mr. Klauder.
Jeff Klauder: A mini version of Bill's story, as a first year associate of Morgan Lewis, I was assigned to work on the capital structuring and essentially what was back then a venture capital financing of SEI. Two years later, I was as a third year associate working on the IPO and involved directly and indirectly with SEI ever since.
Leslie Wojcik: Such a distinguished group. And we really appreciate you taking the time to be with us today. So let's jump in. Recently, CEO, Whitney Wolfe Herd took Bumble public on Nasdaq after launching the dating app in 2014. Typically companies often create disruption in their industries or markets before going public. How do you know when the time is right to take a company public?
Carmen Romeo: As I recall, from a financial perspective, we really didn't have to go public. We did have about $10 million line of credit. And I think we perhaps used a couple of million of it to buy computers, but the company was generating a significant amount of cashflow for its size. And I guess the impetus behind going public was to take out our venture capital backers, the Sprout Group, to a certain degree, not entirely.
Al West: Carmen, I might mention that yeah, we didn't have to go, but we had a venture capitalist that owned a decent share of our company and the thing the venture capitalist has to get out and repay its investors at some point. And when they get out, there's two ways to do it, sell the company, all of it or go public. And we wanted to go public, we didn't want to sell the company.
Carmen Romeo: From almost the very beginning financially. We've always been an extraordinarily solid company primarily because of the business model that was created, which is all about recurring revenue, which is still the model that we use today that provides us with significant amount of sustainability, plus the ability to reinvest into new things. So for the last 40 years we've been doing the same kind of reinvesting and looking at the longer term as opposed to the short run.
Leslie Wojcik: So can you tell us why you chose Nasdaq?
Bill Doran: I think it was less expensive and it was also more of a big company exchange, companies who had millions of investors. Nasdaq was for small companies, I thought. Carmen you know better.
Carmen Romeo: I don't think we met the criteria to be listed on the New York Stock Exchange. And the other exchange was the American Stock Exchange at that time, which was not as prestigious as NASDAQ. So it wasn't a question of why we chose NASDAQ. It's just how companies that went the public IPO route went public. They used Nasdaq as the listing organization.
Jeff Klauder: Yeah. But I think back then Apple had just gone public in December and that gave a real credit-worthiness to the Nasdaq exchange because they listed on that rather than going to the New York Exchange. And I think Bill's right and Carmen, the New York Stock Exchange listing rules were more demanding as far as financial capacity.
Al West: Well, when we did have the credentials that you needed for the New York exchange, they wouldn't give us SEI. They were saving it for Siemens, a German company. And, so they wouldn't give us SEI. We say, "Thank you very much." And we've been on Nasdaq since.
Leslie Wojcik: Nasdaq is home to a lot of growth and tech companies, did you recognize that 40 years ago?
Al West: Nope.
Leslie Wojcik: So what is it looking at the listing...
Carmen Romeo: I might just add something to that. One of the underwriters in this, the two lead underwriters were Donaldson, Lufkin, & Jenrette and Alex Brown, both of which are no longer in existence. But Alex Brown had a particular expertise in the technology companies. So it was important for us to use Alex Brown because their imprimatur gave us more credibility as we were going public. So DLJ was involved because Sprout was part of the DLJ family. But Alex Brown gave us that credibility that we were a good firm and we were in a technology information processing business.
Leslie Wojcik: So when you think back to March 25, 1981, what was the energy like leading up? I'm sure you kept Bill and Jeff really busy with a lot of paperwork and whatnot, but what was the energy like? Were you proud? Were you excited? Were you nervous?
Al West: Well, we were somewhat scared only because somebody had come out and tanked the market, Granville, Joe Granville. And he tanked the market by recommending that all his letter clients and that killed the market for about a year and a half. They did it right before we went public or right on the day we went public. Jeff, which one was it?
Jeff Klauder: It was on January 6, warning the market of a 25% slump.
Al West: Yeah. So the market environment was not very good for new companies, like SEI, but we forged on and ended up having a very good opening of the company on the stock market.
Leslie Wojcik: And where did it take place? Today you have all those big bang, kind of celebratory, confetti blowing everywhere.
Jeff Klauder: I remember taking a subway from New York City to Exchange Place in New Jersey to pass the jumbo certificate over for the check so that you avoid the New York stock transfer tax on the initial offering.
Al West: That's why it's call the Exchange Place.
Jeff Klauder: But typically [crosstalk].
Al West: Carmen, you did that.
Carmen Romeo: I did that, yes.
Al West: And you and Jeff, I didn't make it. We were certainly happy. And we had a dinner for everybody involved in the offering and it was a celebratory dinner for sure. And we had some gag gifts given around. One was a gun, was it John Bales always accused us of gun jumping?
And, then there was another that had a clock. And so we put that in my carry-on suitcase and we went out celebrating. And when we got back to the hotel, my bag was gone. It was nowhere there. We had checked it with the bell captain. And long story short, we were at the wrong hotel. There were two Regency's next door to each other. And we pulled up in the taxi and came back and gave him my bag and told him what my room was. And so, that was for the other hotel. So we didn't figure this out until it was too late for me to make the Exchange Place, but it was funny.
Because we thought what's happened is they saw the gun, the clock was ticking. And so they're going to open this thing up. And think, alarms will go off to the [inaudible] of the hotel, we were really worried what they were going to do, but it turned out it was sitting in the luggage rack, the other hotel. So fun dinner.
Leslie Wojcik: So when you're looking at it today, where one of about a hundred remaining companies that were listed in 1981 on Nasdaq, what would you say is the key to staying power?
Carmen Romeo: One of the reasons why investors fell in love with SEI back in '81 and to this day is the business model that we adhere to, which is recurring revenue. And that long-term recurring revenue gives us the ability to have long-term staying power. That is sustainability. Plus it gives us the ability to continually make investments in the business. So I think those are the two key attributes that we exhibit. And I guess if you wanted to add a third that we had back then and to this day we have products and services that make us unique and we have this orientation of trying to meet customer needs. And that goes a long way to reinforcing the recurring revenue of our business.
Bill Doran: Yeah, it was interesting if you go back to the '81 public offering, which was a really huge event that everybody was focused on. The very next board meeting we was when we first talked about starting money market funds. And of course, if you've followed the history here that the led to a pretty significant asset management business. So I think the companies ran, both because great financial management, focus on cash flow, but also constant innovation that keeps fresh products fresh, services new markets, and that's a must, if you want to be around this long.
Al West: Yeah. We feel during the last 50 plus years that we've had about five or six different companies that we morphed into businesses, usually one after another. And it does give you a staying power if you can stay up with them and that's what we've done. Stayed up with our markets.
Leslie Wojcik: What are the benefits of being publicly listed?
Bill Doran: I'll give you two. The beauty of being public is people who are investors know what good stock's priced at and what it's worth. There is sort of a market out there fixing values. You don't have that going private, the other I think a big benefit to SEI was we started an employee stock option plan. [inaudible] became a cornerstone of compensation and you can't really run that easily with a private company. You can do it, but again it's not liquid, it's hard to get the values correct.
Leslie Wojcik: And certainly from an employee standpoint it's equity, you have equity in the company that you're working for. You all are shareholders, and you've certainly had lots of opportunities to cash out. Why do you continue to invest? Why do you hold on to your shares?
Al West: Well, we believe in what we're doing. And so we believe that we're doing the thing that's going to make us successful. If you look at our entire track record all way, going back to '81. So if you look where the market is judged and we are. We have provided very, very, very good returns to our shareholders every year or every 10 years.
Leslie Wojcik: How many times a day do you guys check the stock price?
Bill Doran: Zip-a-Dee-Doo-Dah. Once.
Carmen Romeo: Once a day?
Bill Doran: Yeah, just to look, that's all. I don't do anything.
Carmen Romeo: I check it as well. But you know all businesses don't go up in a straight line, there's peaks and valleys. And we had our share just like a lot of other companies, but I guess if you have faith in the business and in the people that are running these business units, you could look beyond those valleys. And the other reason why is that we have had, I guess since 1987, I believe that's what it was, a very aggressive stock buyback program because we have faith in the long run that this company will be around and will significantly increase in value.
Bill Doran: Well, I have always thought part of it because all of us hold a lot of shares, but a lot of the reason is compared to investing that money somewhere else, you know this company if you work for SEI, you're going to know it better than you'll ever know some other equity investment. So there's lots of reasons for them to just stick with some company really know and know how it works and know hopefully where it's headed.
Leslie Wojcik: So if you guys had to pick one moment in the last 40 years that was either your most proud or most fun with SEI, what would it be?
Carmen Romeo: One of the things that we would talk about, and I think we mentioned this earlier, is that when we first got into the mutual fund business, we started an institutional money market fund for our bank trust department clients. And when we started that fund, we had $180 million investment into money market funds that first day from our clients. And so that was kind of important, but what was more important was that we had sort of changed the technology or sort of adapted the technology to allow that sweeping function to occur into our mutual funds. So it was a very innovative kind of product offering that clients were looking for and it made it easier for them to invest their short-term cash, but $180 million was a record for day one of any mutual funds in the country, whether it be a cash bond or equity fund or bond fund. So that was pretty cool, I think.
Jeff Klauder: Yep. I'll tell you one of the ones to me that was one you're looking for a proud moment during the financial crisis, when money markets were breaking the buck, I think Federated's did. And we had the issue when we had invested in the sieves, in our money market fund and were in danger of breaking the buck. And the only way to avoid it was for SEI to step up and put its capital behind the money market funds to the tune of, I don't remember now $300 million, was it?
Carmen Romeo: $300 million.
Al West: Yeah.
Jeff Klauder: Yes. And at a time when SEI could have absolutely walked away and said, we're going to follow Federated routes. People invested in the money market fund, they knew the risks of breaking the buck. It's a difficult financial environment. We can walk away and let them take the hit, SEI didn't. They stepped up and took care of the clients' problems, which is to harken back to what Bill and Al were saying at the beginning. That is what SEI has done over the years. It's found success in solving client's problems. And that was an example of doing it at a tough time. Remember, the stock was falling down the nine at that point in time.
Bill Doran: Yes, I do.
Carmen Romeo: I remember it very well.
Al West: In '87.
Jeff Klauder: That would be a proud moment.
Leslie Wojcik: This was an incredible opportunity to hear your stories today, the emotions, the considerations, everything that went into this business milestone 40 years ago. Thank you so much for taking the time to be with us. And we're really looking forward to the next four decades and beyond.
Speaker 1: Thanks so much for joining us today. Stay tuned for more conversations with members of our community until next time, stay well. And of course we hope you'll meet us back at The Intersection soon.