Who has been the most successful financial services chief executive over the past decade?
The names of billionaires Sandy Weill, Hank Greenberg, and Charles Schwab immediately come to mind, but a solid case could be made for Alfred West Jr.
Alfred who? If his name doesn't ring a bell, the stock of the company he runs does.
Shares of SEI Investments Co. rang up an average annual return of more than 36% during the past 10 years.
That performance beats out those posted by each of the aforementioned trio's companies - Mr. Weill's Citigroup Inc., Mr. Greenberg's American International Group, and Charles Schwab & Co. Inc. - managed in that period, according to The Wall Street Journal's 2002 Shareholder Scoreboard.
Mr. West, SEI's 59-year-old co-founder, chairman, and chief executive, has received little of the attention his fellow Forbes 400 members have gotten, in part because his company is much smaller than theirs and the source of his success is relatively obscure. He used a few proprietary systems to streamline such labor-intensive investment chores as trade-order processing, portfolio analysis, asset allocation, record-keeping, regulatory compliance, and tax reporting for banks, pension funds, and other financial services providers.
But if he has his way, SEI will become a lot better known by becoming the outsourcing king of financial services. In his vision of the future, his company will take care of virtually every back-office job for clients big and small around the world.
Those are big dreams, and while Mr. West has proven he has the ability to do the unexpected, under the current market conditions, he's having a tough time just running in place, much less getting anyone interested in sweeping propositions.
"When you say you're going to do it all," he says, "that's a much tougher sell."
With the market sluggish for over a year, SEI's stock has slumped, revenues have flattened, and earnings growth has slowed down. Still, Mr. West says there is enormous long-term potential, and if anyone disagrees with him, that's OK. He's used to skepticism, even from friends and colleagues who doubted some of his cutting-edge ideas. Indeed, one reason for his success was his having created an atmosphere open to just about anything.
SEI's headquarters in Oaks, Pa., a Philadelphia suburb, is a combination family room, frat house, country inn, college campus, and art trove. A series of interconnecting barn-like buildings cover more than 100 acres overlooking a pond. Parking is first-come, first-served, babies are welcome, floors are made of recycled material, and every staff member is assigned to a team. Employees have black desks more or less lined up in large spaces.
"People are their own worst enemy," Mr. West says. "They will assume the worst reality, but in an open environment you can see what the reality is."
The chairman's desk is in the second wing behind the main entrance to the campus. It's the one with the full-scale model of a vulture - a reminder to people to "keep meetings short," he says. He is part of the management team and, while he'll admit it's more equal than other teams, he tries to downplay its importance.
"What do we do?" he says. "We're here for everybody else."
SEI's offices are generously decorated with avant-garde art, and Mr. West enjoys giving tours. His daughter selects the works and he pays for them. "I don't think public companies should buy art," he says.
Mr. West can afford state-of-the-art office design. He became outrageously successful in the '90s, helped by terrific timing. SEI made a big push into marketing fund of funds management in mid-decade after spending millions revamping itself - including the move to Oaks - just as the bull market was taking off. It soon surpassed Frank Russell Co., the leader in that money management niche, and now, with $79 billion under management, SEI is closing in on the top 50 money-manager roster.
As stock values appreciated and more investors bought more shares, stocks became a bigger part of SEI's mix. And because stocks generate bigger fees than bonds, revenues grew faster. Sales were also helped when managing traditional pension plans - including selecting stock and bond managers and developing asset-allocation strategies - led to doing 401(k) business at little added expense. Consequently, earnings grew much faster than revenues. Sales more than doubled to $598 million in 2000, from $247 million in 1996, and earnings went from $23 million to $98 million.
Wall Street took notice. SEI's stock reached a high of $63 a share in 2000 after spending much of the early 1990s in the $3 range (on a split adjusted basis), and the value of Mr. West's holdings - currently 23% of the outstanding shares - peaked at more than $1.6 billion. Now, even in a slumping market and with SEI's price down to $33, Mr. West's stock is worth $840 million. The five-year record of SEI's shares was tops among all financial services companies and has gone from 25th place in 2000 to 16th currently in the overall rankings.
Mr. West, of course, also got richer. His possessions include a waterfront retreat on Jupiter Island, Fla., the most expensive town in the country according to Worth magazine, a ski lodge in Aspen (No. 4 on the Worth list), a 105-foot ship with a crew of five, time-shares in three jets (two Citations and a Falcon), and a 10,000-acre Texas ranch.
Mr. West traces his roots to pre-Revolutionary times. His great-grandfather founded Brooksville, Fla., where Mr. West grew up - 40 miles north of Tampa. His father had a successful INA insurance agency.
Born on Dec. 7, 1942, Mr. West, the oldest of three children, became a top student and athlete. He even got the girl.
"My mother fell in love with him first," says Loralee West, his wife. "She thought he was the cutest boy."
Mr. West and his future wife began dating in their senior year of high school. She was the captain of the cheerleaders and he was the star receiver on the football team, and even then his offbeat ways were evident - he was playing golf when he was supposed to be at a ceremony where he was named to the all-conference team. His high school ambition was to go to the Georgia Institute of Technology to study aerospace engineering and become a fighter pilot.
What made him want to be a pilot? "I guess it was seeing the rockets taking off from Cape Canaveral," he says. "And engineering would help me get my first choice" in flight assignments.
Loralee was similarly smitten by flying, leaving the University of Georgia to become a flight attendant with Eastern. She quit that job after being suspended for appearing in a newspaper as the Georgia Tech homecoming queen, the nominee of Mr. West's fraternity. (Outsiders were allowed, since women were scarce on campus in those days.) By then, marriage was in their plans. Indeed, they delayed it only after accepting bribes from their parents to hold off until Mr. West graduated.
The wedding took off as scheduled in 1964, but his bad eyesight crashed Mr. West's aviation dreams. Instead of the Air Force, he enrolled in the graduate business program of the Wharton School to pursue first an MBA, then a doctorate. Money was tight, but with help from home, he and his wife managed in a rented studio apartment in West Philadelphia.
Mr. West's academic star rose. He earned a fellowship and collected stipends, enough that he needed less help from his parents. But some friends thought his head was no more in the Ivy League towers than it was in the wild blue yonder.
"He wanted to be a millionaire by the time he was 30," says Jay Landers, a friend since childhood.
Mr. West disputes that. He says he was crushed when he couldn't become a pilot, though he acknowledges he "really wasn't crazy about" getting a doctorate.
"You're overqualified for everything except teaching," he says, and he didn't want to teach.
What he wanted was to go into business. With a classmate, Douglas McNair, Mr. West came up with idea of selling computerized case studies to train bank loan officers. Though he needed only to complete his thesis, Mr. West forgot about getting his PhD, and in the spring of 1968 Simulated Environments was born. They got a little help from Morgan Guaranty Trust Co. chairman Thomas Gates, an old Navy buddy of Mr. West's father. With Mr. Gates clearing the way, Mr. West got a $75,000 loan and $50,000 in seed capital from the bank. First-year sales were about $250,000, and the partners paid themselves $25,000 each in salary.
Mr. West and his wife moved up in the world to a one-bedroom apartment in Drexelbrook, Pa., where their daughter Paige was born in 1968. The businessman's fondness of practical jokes had earned him the nickname "Dirty Al," his wife says.
Once, when Mr. and Ms. West were apartment-sitting for friends, he posted a sheriff's dispossessed notice on their apartment door and moved all the living-room furniture to the bedroom. Another time, Mr. West stacked newspapers to the ceiling in a friend's bedroom and put rice in his socks. (The friend saved the rice and later dumped it in the Wests' bed.)
Meanwhile, his business was doing well. Simulated Environments sold 50 systems, but Mr. McNair left and, as was so often the case, Mr. West was looking for something new.
He found it when a like-minded Wharton scholar, Steven Katz, came to him with an investment-technology idea that emerged from his thesis. Together, they developed it, in 1972, into an accounting program for bank trust departments. These departments, which conjured images of bookkeepers in green visors crunching numbers in the basement, were ripe market for a fresh idea, and the new duo became even more successful than the first. Mr. West and his family of four (having added Alfred 3d) moved into their first home, and the company got a new name: SEI Corp.
Banks enthusiastically adopted their system, and the partners went far fast. The two were well matched in some ways. Mr. Katz talked, while Mr. West listened - and played practical jokes. Once he stuffed rubber bands in Mr. Katz's hoagie. Mr. Katz was talking and chewing when he discovered the rubber bands, stuffed them back in and kept on doing what he was doing. Mr. Katz could not be reached for comment, but Mr. West and other SEI veterans insist the story is true.
In two years, they landed Wells Fargo, easily their biggest customer then. Converting Wells Fargo's system took several months of physically grueling work. Mr. West spent two months in San Francisco working on little sleep. His back hurt and whenever he could manage a break he would lie on the floor of the bank office where he was working.
Business was almost too good. In 1978 the partners had a bitter fight about the company's direction. Mr. Katz wanted to sell it. Mr. West didn't.
"This was his baby," Ms. West says. "There was no way he was going to give it up."
Livid, Mr. Katz sued Mr. West. But Mr. West wouldn't bend. Adding a little more stress to his life was the fact that he was buying another house, the home he still lives in today. Set on seven acres in Paoli, Pa., it was big enough to accommodate a family that had grown to its current five with the addition of a second boy, Palmer. There were legal wrangling there, too, as buyers and sellers litigated over, among other things, a ratty rug left in the house.
That dispute was eventually resolved, but the corporate battle heated up. The only common ground the warring parties could find was to bring in Drew Lewis, who would later join President Ronald Reagan's cabinet, to broker a peace.
"Al was tenacious," Mr. Lewis says. "I wasn't concerned about Al's ability to run the company. He was more amiable, easier to work for, very comfortable as a manager. He liked people. I was worried if he had the genius Steve had for future products. Clearly he did, and where he didn't he hired the people he needed."
Eventually, Mr. Katz agreed to sell his stake to the venture capital arm of Donaldson Lufkin & Jenrette for more than $3 million, and a decade later told American Banker that Mr. West was a "good guy."
Having a venture capital firm as a partner set in motion the preparations for a new course for SEI, and in March 1981 the company went public (DLJ sold its stake for $50 million). It was good timing, because the market and interest rates were rising.
Mr. West had in place the means to make money from rising interest rates. He realized that there was a lot of excess cash lying around trust departments earning scant interest, and, in the high interest rate environment, money market accounts were very popular. So he started his own money market operations, swept the trust department cash into them, and became a money manager.
Mr. West diversified further by acquiring the consulting arm of A.G. Becker in 1983. SEI was now moving ahead on three fronts and the stock was up, but Mr. West was inexplicably nervous.
"I was always anxious," he recalls. "I was having a mid-life crisis. The strange thing was I couldn't think why. The company was doing well. My family was OK, but I had to go the doctor just so I could hear that I wasn't going to die of a heart attack."
As always, he remained outwardly unruffled.
"I was aware of it, though I couldn't say how," recalls David Robb, an executive at SEI in the '80s, says of Mr. West's personal problems back then. But he has always believed that there was a lot more to his former boss than anyone could see, he says.
"Like with a duck, everything is calm on the surface," Mr. Robb says. "But underneath, he's paddling furiously."
Not everything was going as well in the office or at home as it may have seemed, though it only became more evident as the '80s wound down. Consulting proved a good business for SEI, but no matter how hard Mr. West tried he couldn't blend the consultants into his corporate culture.
Carmen Romeo, an SEI executive vice president, says, "Whenever we'd get together, they'd never associate with us."
That was not good in a company that Mr. West tried to treat as family. In the 1980s he started taking employees on vacations regularly. Forty-six with spouses went to Puerto Rico in 1981, and last year more than 400 staff members and their spouses were treated to a trip on the Mississippi paddle wheeler with entertainment by Willie Nelson.
Another thing that rankled Mr. West was the consultants' approach to the bottom line. Consultants got their fees - no matter what. He wanted them to have more a profit incentive, but he got nowhere.
"They can't be responsible for ultimate performance," he says. "We will. That's a different mentality. We couldn't get all of them to accept it."
There were problems at home, too. His son Alfred, who had gone away to boarding school, was kicked out for drinking. It was the beginning of a long slide into drug and alcohol abuse. Mr. West and his wife persuaded him to seek treatment. He dropped out. They talked him back in. He was eventually diagnosed as a paranoid schizophrenic, and Mr. West and his wife participated in his therapy.
"The first thing they tell you in treatment is not to kick yourself," Mr. West says. "I really worked hard to be with the kids."
Mr. West also sought help for his company, hiring industrial psychologists to get his employees to work more harmoniously.
Everything seemed to come to a head in the winter 1990, when Mr. West was hurt skiing in Aspen (the country, meanwhile. was hurtling toward recession). It wasn't his first accident - several years earlier he had separated his shoulder racing on the slopes against his sons - but this time he had fractured his leg in four places. He was facing a long stretch laid up in bed.
When he returned to work months later, he was brimming with ideas to change the company. Two stood out. One was to open up the workplace - SEI would move out of its largely traditional offices into a new, more free-wheeling setting. No one would have a secretary, including Mr. West. Everyone would have to answer their own phone and work in teams.
The other momentous idea was to get rid of the consulting business. It was still profitable, but Mr. West saw it as too much of a conflict, personally and professionally, with the other businesses. Also, he had gotten what he needed out of it to ramp up his money management operations.
It was a clean sweep. The consulting chief was fired, and the technology and investment heads, two ambitious men who had been jockeying for more power, left. And there was plenty of grumbling among those who stayed, including from his daughter, an SEI employee at the time. She confronted him at home.
"I told him we were five people sharing one secretary," Paige West says. "I was so angry I cried. He basically said tough noogies."
It wasn't going to be overnight. For one, new headquarters would have to be built. Mr. West tried to address the old and new complaints at a management committee meeting for about three dozen executives.
"Where my son was being treated, they started meetings with a hug," says Mr. West, explaining how his trials in and out of work came together that day. He told the executives how important it was for everyone to get along and then demonstrated how by embracing one of them. That proved to be one idea that was left out of the new management style, but it was one indication how serious he was about making changes.
Mr. West began building up his money management operations, and in 1995 he announced he would sell the consulting business. The next year the new headquarters opened, and what is effectively a permanent construction site down the hill remains a work in progress.
SEI has gone into new areas since moving to Oaks. It has expanded overseas and is administering 401(k) accounts as well as defined-benefit plans. Still, Mr. West has a long way to go before SEI is doing everything for everyone. Indeed, it's virtually a nonplayer in the insurance industry.
"We've only scratched the surface," Mr. West says. "And it's a huge, growing market."
Among the country's estimated 7,000 financial advisers, SEI gets 80% of its business from about 7% of the market, and Mr. West expects to do much better in penetrating that market. He also expects to do a huge business in securities settlement in a few years; when it will be required that transactions be completed in one day, and that the technology to do the job will come at a premium.
Leverage - building one massive proprietary technology system and adopting it to as many jobs as possible - is key. Mr. West wants the power of a much larger company so that revenues will gallop while costs crawl.
"I keep telling everyone we have to focus on the center and work around the edges," he says. "We have to be big and nimble at the same time."
He's got his work cut out. Even some of his biggest supporters are cautious. Among them is Steve Cochran, the executive director of the North Dakota Retirement and Investment Office, which invests the state's pension funds. He signed up with Mr. West's company for the first time last year by turning over just a small portion of his portfolio to SEI.
"Al West over the years has been ahead of the curve," Mr. Cochran says. "We're interested in seeing what they'll do with investing in private equity, but when we hired them we only needed them to do small-cap, and they respected that."
That view may be shared all over the country. Sluggish sales have slowed and even flattened revenue growth. Investors, having paid handsomely for better gains, have pushed the stock down for more than a year.
A long-range question mark is Mr. West.
"I'm surprised he didn't sell" SEI, says Joe Rogers, a Georgia Tech alumnus and friend who heads up the Waffle House chain.
Friends and family saying he's taking the time to enjoy himself as never before. He's playing golf, skiing in Aspen, hunting birds on his ranch, and sailing on the Who Cares? He was excited about attending his son's debut as a filmmaker and having lunch with Nelson Mandela (a gift from his wife, which she paid for at a charity auction). He has also become more active with his alma maters, Georgia Tech and Wharton. Last year he donated $10 million to the latter for the creation of the Alfred West Jr. Learning Lab.
Still, Mr. West insists his eye is on SEI and that he has no interest in selling or acquiring to make SEI bigger and more diversified. He's where he wants to be and he's doing what he wants to do, with his type of people, he says.
"I love being creative," he says. He'll need to be, if SEI is to do it all.
