Silica is one of the largest third-party administrators in South Africa, owned by Investec Asset Management. The company aims to expand into Europe’s boutique sector through partnerships with local players. Chief executive Michael Prentice says the firm can offer a reliable service at a low cost. Silica currently services $100 billion in assets and over 1,9 million investor accounts.
“The bigger outsourced providers, are chasing the big business to leverage their scale and that’s not our target market. We believe there’s an opportunity in the boutique asset management space. We have the ability to tailor models to suit their needs because we’re more flexible and innovative with our advanced web and online trading functionality.”
Silica already provides administration services to some of South Africa’s largest retail wealth investment providers, which either outsource investment administration to Silica or use its proprietary TA platform.
Now, the firm wants to expand into Europe. It has a strategy to sign deals to provide back-end administrative services at low cost to existing third-party administrators, which already have the necessary links with fund providers and an understanding of local regulations.
“In Europe, our plan is to partner with third-party administrators,” says Prentice. “They have the front-end and the licences, and they would offshore components of their retail administration to us.
“We’ve done exactly that with Phoenix Fund Services in the UK. Phoenix is an FSA-registered third-party administrator. They own the relationship with the fund providers and they offshore the liability component of their mutual fund administration to us.”
Prentice believes that as a South African player, Silica has a number of strengths.
The first is cost. Silica’s salary cost base is less than half that of a typical European administrator, he says, and yet its labour force is typically well educated and speaks English as a first language.
Silica benefits from being based in Johannesburg, where the labour pool is much larger than Cape Town, the base for many of South Africa’s asset managers.
Another advantage of South Africa is that its financial markets are seen to have integrity and are highly regulated along similar lines to Europe. The infrastructure in South Africa is well developed, geared for growth and in a similar time zone as the UK for most of the year.
While it seeks for new European business, Silica will continue to develop its African operations. Prentice believes the company’s achievements in its home market are the key to demonstrating its competence as an administrator and they cannot lose focus on this. These achievements have helped the firm rise in the ranks of the South African market.
“We’ve moved up from being a mid-tier player in South Africa to being attractive to the large financial services organisations,” he says.
The company is active elsewhere on the continent. Prentice says the firm is already capable of handling retail funds across the South African Development Community (SADC), a group of 15 southern African countries including Botswana and Namibia.
The company is also active in Kenya, which is outside the SADC region. Silica partnered with Old Mutual to help define the mutual funds industry in Kenya, where Prentice says there are more than 40 international banks. Most of these banks are currently concentrating on building up a retail banking business, though, meaning that a market for mutual funds is something that will happen in due course.
EXPERTISE
Given that its expertise is in southern Africa, Silica does not present itself as a master of, for instance, Luxembourg tax law.
“We’re not claiming to be a geography or location expert,” says Prentice. “The Luxembourg, pan-European market is pretty much saturated, and we don’t claim to understand the multi-lingual, multi-tax-jurisdictional complexities.
“Instead, we are claiming to be a mid-range, capable administrator with innovative technology and scale, which has a standard model. We’ll partner with a local provider to give us that domain expertise.”
As well as providing back-office services at a low cost for European players, Silica believes it can help businesses in emerging markets.
“The next two areas where our flexibility and speed to market will differentiate us is in the South American and Asian markets,” he adds. “They are rapidly emerging, they have underdeveloped models, and we could make some ground there.”
©2013 funds europe
