Ladies and gentlemen, thank you very much for standing by and welcome to the SEI 3rd Quarter 2018 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 to you at that time. Also as a reminder, today's conference is being recorded. I would now like to turn the conference over to your Chairman and CEO, Hal West.
Please go ahead.
Thank you, and welcome, everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO and Kathy Heilig, SEI's Controller. I'll start by recapping the Q3 of 2018. I'll then turn it over to Dennis to cover LSV and the investment in new business segments. 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 Q3 2018. 3rd quarter earnings increased by 26% from a year ago. Diluted earnings per share for the Q3 of $0.80 represents a 27% increase from the $0.63 reported for the Q3 of 2017.
We also reported a 6% increase in revenue from Q3 2017 to Q3 2018. Also during the Q3 of 2018, our non cash asset balances under management increased by $3,600,000,000 At the same time, LSV assets under management increased by $2,900,000,000 during the Q3. These increases in assets under management were due to market appreciation. In addition, during the Q3 of 2018, we repurchased approximately excuse me, 1,700,000 shares of SEI stock at an average price of $61.55 per share. That translates to over $102,000,000 of stock repurchases during the quarter.
Finally, in the Q3, as part of the investments we make to create growth, we capitalized approximately $8,800,000 of the SWP development and amortized approximately $11,400,000 of previously capitalized SWP and IMS development. Q3 2018 sales events, net of client losses, totaled approximately $27,900,000 and are expected to generate net annualized recurring revenues of approximately $22,500,000 Our sales results reflect the fact that activity is very high and our pipelines are large. Still, we are experiencing that larger sales events are particularly complex and take longer to close. Each of our units will speak to their specific sales results. Now this concludes my formal remarks.
So I will turn it over to Dennis to give you an update on LSV and the investment in our new business segment. I'll then turn it over to the other business segments, Ed.
Dennis? Thanks, Al. Good afternoon, everyone. I'll cover the Q3 results for the investments in new business segment and discuss the results of LSV Asset Management. During the Q3 2018, the investments in new business segment continued its focus on our digital advice offering and on our ultrahighnetworthinvestor segment through our Private Wealth Management Group, during the quarter, the investments in new business segment occurred a loss of 2,800,000 compared to a loss of $3,300,000 during the Q3 of 2017.
This improvement reflects the growth of our private wealth management business. Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the Q3. LSD contributed $41,700,000 in income to SEI during the Q3. This compares to a contribution of $39,300,000 in income during the Q3 of 2017. Assets grew approximately $2,900,000,000 for the quarter.
LSB experienced net positive cash flow during the quarter of approximately $300,000,000 Revenue was approximately $133,900,000 of which less than 1% was performance fee related. During the quarter, our effective tax rate was 18.6%. I'll now take any questions.
Okay. Thank you. And we do have a question from the line of Chris Shutler. Please go ahead.
Hey, Dans. How are you? Great, Chris. How about yourself?
Good. So a couple of questions. One was just on the tax rate, just what we should expect from here?
I think we'll probably back, sorry, tax rate closer to what we were in the second quarter.
Okay, got it. And then the corporate overhead expense was down a little quarter over quarter. I think it's usually up sequentially in Q3. So what happened in Q3 there and how should we look at that line going forward?
We had a small benefit from we applied for a tax credit from the state of Pennsylvania, wouldn't flow through taxes, it would flow through expenses because of our investment in our data center operations that came through in the 3rd quarter. So that helped a little bit. But I would say that kind of across the company, we had a concerted effort on expenses during the Q3.
Okay. So going forward, it's probably not going to tick back up to the Q2 level, somewhere in between?
No, that's probably a good range.
Okay. Thank you.
Do have a question from the line of Robert Lee with KBW. Please go ahead.
Great. Thank you. Good afternoon, Dennis.
Hey, Rob.
Hey. Just a quick question on LSV. I was curious if it's possible to get any color on do they have 1 or 2 specific maybe strategies that are kind of bucking the broader industry trend and seeing generating their flows. Just trying to get a sense of kind of drilling down a little bit on what may be driving this?
Yes. I mean, most of their,
let's say, more smaller cap, mid cap regional products are closed to new money. So their flows are still going into the more, I'd say, their bread and butter foundational products. Now the good news for them is that their distribution activities, their asset flows are also coming globally. So they're not just from U. S.
Clients are coming from other geographies in the U. S. Products. So it's still their bread and butter stuff is helping them. Great.
Thank you very much.
You're welcome.
Thank you. And we'll go back to the line of Chris Shutler with William Blair. Please go ahead.
Hey, Dennis. Sorry to ask on a lower end here. But on our LSV, could you give us any update on their performance in the Q3 or I guess so far in October, we don't have great visibility into that, pick picks up like through June 30. And I know they had some challenges earlier this year, great long term performance, but just wanted to get an update.
Yes, I mean, they're again, on their more traditional strategies, their performance is okay. Value has been a tough segment of the market, as you're probably aware, and that did continue to play out during the Q3. Maybe the market cycle we're kind of getting into now, that will change a little bit. Some of their other strategies, their performance is
actually pretty good. But you can see it
in their performance fee number coming down a little bit. Last year, this year, even 1st or second or second and third quarters down a little bit. So performance is a little bit tougher.
Okay, makes sense. Thank you.
You're welcome.
We have no further questions. Please continue.
Thank you. Thank you, Dennis. I'm now going to turn it over to Joe Eugebine to discuss our Private Banking segment. Joe?
Great. Thank you, Al. I'll start with a financial update on the 3rd quarter followed by an update on new business activity. 3rd quarter revenue of $118,500,000 was down slightly from the 2nd quarter, primarily due to a decline in mutual fund trading revenue. For the quarter, operating profit of $2,000,000 was also down from the 2nd quarter due to the lower revenue and slightly higher expenses largely tied to the SEI Wealth Platform.
During the quarter, we signed one new SWP agreement, Cornerstone Advisors. It's a new client to SEI. Year to date, we have signed 7 new SWP clients. In Q3, we also signed $3,500,000 professional services fees related to SWP clients and prospects. In U.
K, we continue to cross sell and gather solid net cash flow from current SWP clients. Net cash flow for the Q3 from U. K. SWP clients was $1,400,000,000 Sales activity in the U. S.
And U. K. With current clients and new prospects is strong. As we mentioned, some of the larger decisions are very complex and frankly can be political with inside of larger organizations. For example, at 1 U.
K. Client, we are negotiating to
deconvert
some assets from SWP, while we begin to to deconvert some assets from SWP while we begin to convert new books of business to the platform. We expected this to be a net positive growth event for SCI, and this opportunity is still under negotiation. Regarding Trust 3,000, during the quarter, we re contracted 4 clients for a total of $3,800,000 Included in the re contract numbers is a Trust 3,000 client that gave us a termination notice in Q4 2017 that they have since rescinded and as they have extended their SEI relationship. Year to date, we have re contracted 16 Trust 3,000 clients for $42,000,000 of annualized revenue. There were no Trustee 1,000 client losses during the quarter.
Our asset management distribution business experienced approximately $55,000,000 in negative cash flows, mainly from non U. S.-based distributors. Overall, net sales events for the Private Banking segment were approximately $5,000,000 of which $1,500,000 is recurring annual revenue and $3,500,000 is onetime or professional services revenue. I did want to make a quick correction. Cornerstone Advisors is actually a new client for banking.
They were not a Trust 3,000 client, but they are a client of SEIs in the IMS space. Overall sorry, as an update on client conversions, we converted a U. K. Client to the SEI Wealth Platform during the quarter. This brings the total to 37 clients currently processing on SWP.
Our total signed but not installed backlog for SWP is approximately $29,000,000 in net new recurring revenue. As I mentioned on previous calls, we are tracking a metric to illustrate our continued momentum with SWP. The total annual recurring revenue value of our SWP backlog, this number includes the recontract value of Trust 3,000 relationship plus the net new recurring revenue is greater than $72,000,000 And as the average contract term in our backlog is greater than 6 years, the uninstalled clients represent more than $450,000,000 in contracted revenue to SEI. We continue to actively work with Wells Fargo on the conversion to SWP, but have not yet set a new conversion date. Overall conversion activity is robust with 40% of the backlog expected to convert by end of 2019 and the remaining to convert after that time.
In conclusion, we remain focused on the following: capitalizing on our momentum to grow the SWP business installing the backlog to matriculate the revenue and improving profitability of the Banking segment to return the unit to its historical profit margins. Any questions, please?
Yes. We'll go to the line of Robert Lee with KBW. Please go ahead.
Great, thanks. Thanks for taking my questions. Good afternoon, Joe.
Hi, Rob.
Hi. I was just curious, could you update us as we look at the backlog and the clients you're signing up for SWP? I mean, I know the original intent of the platform was to make it much more asset based. So obviously, you get that asset growth over time, notwithstanding short term volatility like we have now. But can you maybe give us a sense of on these new relationships or even existing ones, kind of how the mix is shaking up between the proportion that may be asset based versus maybe account based or flat fee?
Just trying to get a sense of how we should think of?
Yes. It's still largely asset based, although the pricing we have evolved the pricing over the history of SWP. And in the UK, the mix of clients are generally higher growth, fairly high growth wealth manager advisory clients. So we're seeing not only growth from the market appreciation, but those businesses have a tendency have been growing many of our clients have been growing organically and through acquisition, but also organically. And that certainly helped, we've seen good revenue growth from that.
In the U. S, the clients have a slightly different sort of background. Some of them have been our Trust 3,000 clients, which again were largely an asset based solution, but we have added more pricing mechanisms around accounts and seats depending on the nature of the underlying functionality. But still overall, it's still very much an asset based. Majority of the pricing is asset based.
And then maybe just a quick update on the Trust 3,000 that you did re sign. Can you maybe just update us on kind of what type of, if any kind of pricing concessions you're seeing? And then maybe any sense of if we look forward over the coming quarters, is there
a lot of are you
pretty much through a kind of repricing or resigning?
Yes. Well, I
have a couple of comments. One is, there are some net downs, but they're single digit net downs. And in some cases, it's been where a bank may not have as many accounts on the platform on Trust 3,000 as they would have had in the past. We've had a pretty solid year on recontracting. And we have most of our important clients are either recontracted or well on their way to recontract.
But also, we're talking engaging those clients with their eventual move to SWP. So we typically have a pretty long term strategic conversation with them. Some will choose to recontract for 2 to 3 or so more years on trust. But in all those conversations, we're talking about the eventual move to SWP.
Great. Thank you for taking my questions. Thanks.
And next we'll go to the line of Chris Donat with Sandler and O'Neill. Please go ahead.
Great. Thanks for taking my question, Joe. I wanted to ask one question with about something you've been disclosing in the press releases when you announced SWP wins, which is the number of clients in implementation and it's been sort of around the 8, 9 number. Does that represent something of your maximum implementation number? Or is that really a function of things, not just number of clients, but really accounts or assets or something else?
Yes. That's not our that's not a maximum for us. We think we can handle considerably more than that. That's more of a reflection as we have not selling this thing fast enough. But we could certainly have more than 8 or 9 clients in the backlog.
Okay. And then just on the $3,500,000 of professional services signed this quarter, is that something we should expect in the next couple of quarters as it flows in?
Yes. Some of that has already flowed in. So in some cases, that's usually matriculates more quickly. And so some of that is tied to the conversions that we're doing and some of that is tied to projects that are more in we call the discovery or the sales phase. But yes, we recognize that revenue generally fairly quickly.
Okay. But to confirm, some is in the sales phase or the discovery?
That's correct. That's correct.
Got it. Okay. Thanks, Joe.
Thanks.
And then we'll go to Chris Shutler with William Blair. Please go ahead.
Hey, Joe. Hi,
good afternoon, Chris.
So I just wanted
to dig into the couple of examples that you gave. So the U. K. Client, just if you could reiterate what you said there, maybe talk about that a little bit more. And then, I think you said that one client that originally gave a termination notice in last year is now on board.
So just what kind of change there?
So I'll take that one first. So with the client that was a long term Trust three thousand client, smaller, more of a community bank type client, They were acquired by another bank that was on another system. The plan was to move off of Trust onto the competitive system that the acquirer had after reconsideration and moving towards conversion. They came back to us and said that they did not want to move on to the other system and that they wanted to recontract on Trust 3000 for a couple of years and they wanted to consider SWP for the larger merged entity. So that I think is what we've seen, I think we've talked about on some other calls where there have been firms that have been interested in some of our competitive systems, whether it be for price or maybe for convenience in this case with a merger and ultimately come back to us.
So we're happy about that and we'd like to see more of that with some of the losses we've experienced over really last year. Well, most of those losses happened last year in 2017 or sooner than that. And then in the U. K, I just wanted to sort of give an example that we're having good conversations with large firms, both prospects and clients. We have a situation with the clients there, and we believe that we have an opportunity to grow our business there, but the mix of the underlying accounts might change.
So because of some changes with inside of that firm and the strategy inside of that firm. So I think the point there I wanted to make is that these are complex and but we're working with these large firms to identify what's our best opportunity and where SWP fits and making some good progress there. But in the meantime, they may change around the mix of underlying accounts.
Okay. And then I think also, Joe, you mentioned the main reason for the decline in revenue quarter over quarter was mutual fund trading revenue.
Can you just give us a
little bit more detail? Yes.
We have an outdoor service where we execute mutual fund trades for our clients, and we are paid usually basis points to do that as an administration fee. And we're finding that some clients are no longer participating. We're still doing the trading, but the fees are coming down or they're deciding not to take administration fees from the funds essentially. So I think that's sort of an industry pattern. It's still a big business for us and we still have significant revenue associated with that.
But some of those volumes have declined, either the clients are trading less in funds or they might be going directly to the funds and not participating in the service anymore.
Is this just 12(1)?
Yes, it's 12(1)s or other administration fees that they would share with us or give to us for the services that we provide.
Okay. Thank you.
Some banks are just deciding not to invest in funds with those kinds of shareholder servicing fees.
Okay.
Thanks, Joe.
Thanks.
Thank you. And next we'll go to the line of Glenn Greene with Oppenheimer. Please go ahead.
Thanks. Hey, good afternoon, Joe. Hi, Glenn. Just a couple sort of just data points. Where are you in terms of how many Trust 3,000 clients you have left?
And as you're recontracting them, you mentioned a few recontracting this quarter, what's the average duration of these recontracts?
I think the average duration is about 3 years or so, 3 or 4 years. And there's still a lot to recontract. So there's obviously some of the very large ones and there are still a decent number of we had about 90 or so clients and we still have a decent amount of those to I'm sorry not to recontract but to move to SWP.
So what I'm trying to get at is, are you anywhere close to or where do you get to a tipping point where you get more aggressive with the existing Trust 3000 where you sort of disincent them to stay on Trust 3000, if you know what I mean, or incent them to move to SWP?
Yes. I think we're getting close to that. So the platform has very robust functionality for U. S. Trust types of U.
S.-based trust departments. We have strong functionality there. We have more maturity in the platform. So I think in almost every case with every contract, we lead with a move to SWP. And sometimes that depends on what else the client is trying to accomplish from a technology standpoint outside of our area.
But we're, I'd say, increasingly more aggressive about that.
And then just a final question. I don't know how you want to answer this, but given the Wells Fargo conversion delay, you obviously or presumably have a hole in your sort of conversion backlog. What are you doing to sort of address that if I'm correct
in that thesis?
Well, we're still working and we're still getting paid by Wells Fargo to implement the conversion. The conversion is taking longer than we would have expected. So there are still significant amount of people working on that and we're getting like I said, we're getting paid for that. And in the meantime, we're trying to sell the fill the rest of the pipeline. And so there are, I guess, I said 8 or 9 accounts, one of those accounts as Wells.
But the goal is to continue to sell more to utilize the resource that we have. But people are not sitting around waiting for work. Some of these conversions are more complex than some of the original conversions. So we're working to get those done as fast as possible. For example, we announced, I believe in the Q1, a U.
K. Client for the platform and we converted them fairly quickly in the Q3. So part of this is also trying to get things use the resource and experience we have to get things converted more quickly. Okay. Thanks, Joe.
And matriculate to revenue more fast, more faster.
Yes. Faster.
Okay. Thanks.
Thank you. And our next question comes from the line of Robert Lee with KBW. Please go ahead.
Great. Thanks and thanks for taking the follow-up. Joe, I guess I had a question on really the asset management programs. I know a couple of years ago that was pretty quickly growing kind of segment within the private within your overall segment and notwithstanding some outflows modest outflows this quarter. Can you maybe update us on kind of what's going on with that part of the business?
I mean, it's a slowdown. Yes.
As we talked before, it's about a 30% of our business. And we are we have some really solid distributors that have been good this year. The business is a little bit more non U. S. Than U.
S. And we have strong teams now on the ground in the U. S. And Canada and in the U. K.
We have a good solid pipeline there. We're looking for big deals that will drive assets. We've signed some deals this year, but it does usually take a little bit of time for those assets to matriculate. So we signed sort of a deal with at a headquarters level and then we've got to go in and train and get the sales force there promoting the solution. So I'd say the pipeline is solid.
We've got some deals signed that we would expect funding to start to flow in and then we would calculate those as events as the assets actually matriculate onto our funds.
And then maybe just one more follow-up if I could. Just this is I mean, this goes back to, I guess, I'll call it decommissioning Trust 3,000 to an earlier question. I mean, assuming you at some point, you're going to have to announce that you're not going to support it past a certain date and then assuming not unfortunately not everyone's going to go to SWP. So how much lead time do you think you need to give clients and you kind of make that decision? Is it 3 years, 2 years?
How do you kind of think of that and weigh that in the
So I mean, we're it's not like some big events. I mean, we're talking to all of our clients about the eventual, takedown of Trust 3,000. They are all aware of what our plans are and certain clients would need more, time than others based on the complexity of their business. I think we've said on multiple calls though, the firms that are interested to have a strategy, a growth strategy are very interested in potentially moving to SWP. There are some smaller clients or older clients that trust and the services that we've provided have been sort of are now more of an accommodation to their client base as they've evolved their strategy over the years.
So some of those clients, we suspect might leave, we might want them to leave, but those are generally smaller ones that wouldn't take a long term time to convert. But we're having these conversations with every client, understanding their situation and ultimately understanding, talking about the benefits to move to SWP and we expect the most will move. Most will want to.
Okay. Thank you.
Thank you. And our next question comes from the line of Thomas McRehan with Mizuho. Please go ahead.
Hey, Joe. On the mutual fund trading revenue, can you quantify the impact this quarter and what kind of margins are you getting on that business? It sounds like they're the low margin business, but I just want to confirm.
Yes, it is a lower margin business and we were probably down about 15 Well, they're not. Obviously, we'd like to see sequentially better margins every quarter, but a quarter is a short period of time and different things happened in the quarter. But again, we're working hard to convert this backlog and to sell more and continue to build out the backlog. And the margins will improve as we get this backlog converted.
Okay. Thank you.
Thank you. And our next question comes from the line of Patrick O'Hennessey with Raymond James. Please go ahead.
Hi, Patrick.
Hey, Joe. So we're about a year into the Regions Bank install. Any key takeaways that you would say that you've learned over that year and maybe anything that surprised you or it's been different than what you had expected?
So it's been a year, you're right. We've just sort of been talking about the year the year, not celebration, but the year anniversary. I think that, we think that some of the buys the platform from front to back is going to get the greatest benefit and value out of their relationship with SEI. We were able to provide a really solid solution there on the private client side. They are one of our well, they are our largest institutional trust user.
So we had to build out some more services for them on the institutional trust side. And that includes some calculations and reporting of those kinds of things. I think we're very proud of our progress in the 1st year. They are a referenceable client. In fact, we just had a prospect and a very important prospect on the ground in Birmingham a week or so ago.
And so we're excited about how they're using the platform. We're excited about the progress we've made. We're excited about how they've moved how they've evolved their business. And they are referenceable and should be helped us as we grow the business.
Great. Thank
you. And there are no further questions in queue. Please continue.
Thank you, Joe. Our next segment is Investment Advisors. Wayne Withrow will cover this segment. Wayne?
Thanks, Al. In the Q3 of 2018, we continued to grow our revenues and profits while simultaneously making big strides in our migration to the SEI Wealth Platform. 3rd quarter revenues totaled almost $103,000,000 These revenues were $8,000,000 better than the Q3 of last year. This increase was driven by market appreciation and positive net cash flow, offset in part by previously announced fee reductions in some of our investment products. Expenses were up in the Q3 versus last year.
The year over year increase was due to increased direct costs and personnel expense tied to our growth. As compared to the Q2, expenses were relatively flat. The Q3 versus Q2 comparison benefited from there being some one time expense items in the second quarter that did not repeat in the 3rd quarter. Our profits grew $12,600,000 from last year's Q3 and our margins improved 1.6%. Assets under management was $67,100,000,000 at September 30, an increase of $1,800,000,000 from June 30.
The increase was driven by both market appreciation and positive net cash flow. During the Q3, our net cash flow was $324,000,000 During the quarter, we recruited 81 new advisors. Our pipeline of new advisors remains active. With respect to the SEI Wealth Platform, we continue to work on the migration of our advisors. At the end of September, we migrated over 100,000 accounts and over $12,000,000,000 in assets.
We now have 47,000 accounts $4,700,000,000 in assets remaining on Trust 3,000 and continue on target to migrate these remaining assets on March 31 next year. While the completion of the migration is targeted for March 31, we will continue throughout 2019 to help our advisors benefit from the new features on the platform, especially its straight through processing capabilities. In summary, the Q3 reflected our continued financial growth and solid progress in our migration to the SEI Wealth Platform. These items give us confidence in the long term opportunity in front of us. I now welcome any questions you have.
And our first question comes from the line of Chris Anak with Sandler O'Neill. Please go ahead.
Hey Wayne.
How are you doing?
Good. So one thing that surprised me a little bit this quarter is we saw your fee rate as we calculate it tick up to 62 basis points from 61 in the Q2, and that's not something we see in a lot of places these days. So just wondering, is there something in your mix shift? Or as you migrate clients to SWP that causes a little higher fee or something else going on? Just happy to see it, want to make sure I understand why it's going on.
Yes. I can't tell you how a really good explanation. We're getting some we're getting we're starting to get a little platform fees. It's just a lot of little things. I can't tell you there's one factor driving it.
Okay. But no like no changes in your fees on the positive side, but more small things?
No, I wish it were.
Okay. That helps. Thanks.
Thank you. And our next question comes from the line of Robert Lee with KBW.
Good afternoon, Wayne. How are you?
Good, Rob.
First question is really just kind of on the maybe investor behavior and environment. I mean usually when you start getting to these kinds of environments, you start to see the risk off trade, so to speak, advisors, clients kind of try to take down their risk levels. Are you starting to see some of that? Are you just kind of expecting as we kind of look ahead a little bit to start to see some of that kind of filters through and if this kind of this environment kind of stays in place for a little longer?
Yes, I don't know if we're seeing a lot of risk off. I mean, I think if you look year over year, I think liquidity balances are a higher percentage of our overall asset balances. And I think there's a small migration to that, if you recall, risk off status. But I don't and I think there's just a little maybe a little more apathy out there now because people don't know what direction to go. But I haven't seen a major change yet.
Okay. And without maybe reading too much into any 1 quarter's flows, but it does last quarter, this quarter, you have seen some slowdown in inflows and kind of number of advisors while still obviously growing, maybe a little slower pace than it's been in a while. Is there anything maybe around that related to just client preferences or just one of those quarters was slow? I'm just seeing if there's any anything we should be thinking about kind of trend wise?
Yes. I guess what I would say is, I think at the end of March and at the end of September, we had the 2 biggest migrations to date. And when I look at the field force and the service folks, we are focused on getting these clients migrated and it is a little bit of a distraction.
Great.
Thank you.
Thank you. And our next question comes from the line of Chris Schuler with William Blair. Please go ahead. Chris, your line is open.
Hey, Wayne. Hey, Chris. Hey, my questions were already answered. Thanks.
Thank you. And currently there are no further questions in queue.
Thank you, Wayne. Our next segment is the Institutional Investors segment. Paul Carter will report on this segment.
Paul? Thanks, Al. Good afternoon, everyone. I'm going to discuss the financial results for the Q3 of 2018. 3rd quarter revenues of $83,500,000 increased 4% compared to the Q3 of 2017.
17. 3rd quarter operating profits of $43,000,000 increased 6% compared to the Q3 of 2017. Both revenues and operating profits for the quarter were positively impacted by market appreciation, positive net client fundings and changes in asset class diversification by our client base. Quarter end asset balances of decrease compared to the Q3 of 2017. This decrease is driven by lower low fee liquidity balances, net client losses, but offset by positive margin appreciation.
Net fundings for the quarter were a positive 450,000,000 dollars The unfunded new client backlog at quarter end was $450,000,000 New client signings for the quarter were $1,000,000,000 This is primarily new clients in U. S. Endowment and Foundations, U. S. Hospitals and U.
K. Fiduciary Management. Client events in revenue terms were strong due to the consumption of higher earning asset classes. Our sales pipeline is solid and growing and we continue to be aggressive in our pursuits of new business. We continue to believe that volatility in the financial markets would be a tailwind for new business as it would be a catalyst for investors to evaluate their current investment program.
Thank you very much and I'm happy to entertain any questions you may have.
And currently, there are no questions in queue. Please continue.
Thank you, Paul. And our final segment today is Investment Managers. I'm going to turn it over to Steve Martin to discuss this segment. Steve?
Thanks, Al. Good afternoon, everyone. For the Q3 of 2018, revenues for the segment totaled $101,300,000 which was $10,300,000 or 11.3 percent higher as compared to our revenue in the Q3 of 2017. This year over year revenue increase was due to net new client fundings and market appreciation. Our quarterly profit for the segment of $36,000,000 was $4,800,000 or 15.4% higher as compared to the Q3 of 2017.
3rd party asset balances at the end of the Q3 of 2018 were $552,400,000,000 approximately $29,700,000,000 or 5.7 percent higher as compared to the asset balances at the end of the Q2 of 2018. This increase in assets was primarily due to net new client fundings of $22,700,000,000 and market appreciation of $7,000,000,000 And turning to market activity, during the Q3 of 2018, we had our strongest sales quarter this year with net new business events totaling $15,000,000 in recurring revenues as well as the contracts of $8,500,000 in recurring revenues. Most importantly, these sales were diverse and spanned our entire business and included both new name business and increased wallet share with current clients. These events included expansion of our business with several large enterprise clients, the win of a traditional manager and the servicing of the mutual fund family, which was won in a competitive process and the win of a large new family office servicing mandate. A market standpoint, we continue to see the dynamics of the industry changing.
From the demands of investors, the fee compression in the industry, the new evolving needs of investment managers globally, all create some level of disruption. We feel strongly that this disruption presents an opportunity for continued growth for us. Strategically, we continue to feel well positioned. That concludes my prepared remarks, and I'll now turn it over for any questions you may have.
And we have a question from the line of Robert Lee with KBW.
Hey, good afternoon, Steve.
Good afternoon,
Rob. I'm just curious, I mean, well, in the past when there's been M and A and transactions in the industry, you generally view that as an opportunity to get some new clients. And State Street obviously just did a large acquisition, I guess, of Charles River. And I know I mean, does that create any kind of potential disruption
front office of a front office system, I think it's too early to say. But what I'd say, any type of M and A activity, especially in regards to does it change the focus of the acquirer, presents some disruption in the market and that obviously presents opportunity for us.
Okay. And since I have to ask my typical question every quarter, can you maybe just update us on kind of your backlog and how you think of that funding over the coming year or so?
Sure. So our backlog going into the quarter was $44,700,000 Our backlog coming out was $44,900,000 What we should take from that is, if we sold $15,000,000 at the end of the day, we matriculated in around $15,000,000 So we had decent fundings this quarter from the backlog. When I look at the backlog, it's very diverse from our alternative business traditional. It might have a slight edge more in the alternative side. And I believe the majority of that will fund over the next 12 to 14 months.
Great. Thank you.
Sure.
Thank you. And our next question comes from the line of Josh Schwartz with CJE Investment. Please go ahead.
Hi. I'm looking at the sort of more rapid growth of the segment. And I'm just wondering, is this a market share win for the company or is the industry growing quicker? Well, I think the industry is growing, Josh. But certainly, I think we're winning a good bit of the market right now, and we've been doing that for a decent period of time.
But the industry is expanding. There are new managers starting, even though they're you see shrinking in some segments. But I think clearly from our standpoint, we're moving more upstream. We started to do that 2 years or so ago, and we continue to do that. Okay.
And what are the fee basis points looking like in the segment? Is there compression or is it stabilizing? Well, I think there's pressure from if you look at the pressures, which I mentioned in my write up, there's pressure at the manager level in their products. And that certainly works their way down to their partners, including the areas we service. I think though, we pride ourselves on having not a commoditized offering, but a premium offering.
And I think we've been able to battle that fee compression with increased service and kind of a premium service level. But it is something out there. There will be continued pressure. Again, I view it a little bit as a tailwind for us, because I think the more pressure on the managers in this segment, the investment managers is requiring them to relook at their business models and looking how they scale their internal business and operations, and that presents an opportunity for them to outsource more.
Okay, great. Thank you.
Sure. And
there are no further questions in queue. Please continue.
Thank you, Steve. And I would now like to turn it over to Kathy Heilig to give you a few company wide statistics. Kathy?
Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. 3rd quarter 2018 cash flow from operations was $155,000,000 or $0.96 per share, bringing year to date cash flow from operations to $417,900,000 or $2.58 per share. Our 3rd quarter free cash flow was $137,300,000 and year to date free cash flow was 300 and $62,900,000 The capital expenditures for the 3rd quarter excluding capitalized software were $9,000,000 and that did include about $3,000,000 of facility expansion.
Year to date capital expenditures, again excluding capitalized software were 20 $1,700,000 with about $5,000,000 of facility expansion costs in there. We project the capital expenditures for the Q4, leaving capitalized software to be $15,000,000 but and about $10,000,000 of that does relate to the facility. As we noted in the earnings release, the tax rate was 18.6 percent, that's due to a combination of the Tax Act and tax benefit option exercises and our effective tax rate could fluctuate as a result. 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. Our forward looking statements include our expectations as to revenue that we believe will be generated by sales events that occurred during the quarter, the timing and scope of client implementations and our ability to capitalize on our strategies.
Those and also market conditions that will create opportunities for us to grow our business. 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 Form 10 ks for the year ended December 31, 2017, which we have filed with the the Securities and Exchange Commission. Now please feel free to ask any further questions.
And there are no questions in queue. Please continue.
Thank you, Kathy. So ladies and gentlemen, I am encouraged by the direction our businesses are taking and the progress we're making. While we face short term headwinds, we believe that the investments we are making will help us identify a benefit from all the changes taking place in our industry. Have a good day and thank you for attending our call.
Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you very much for your participation. You may