SILICA – Tailor Made Tech Solutions Making Investments Accessible

For Sandton-based software and third-party administration company, Silica, 2020 looks set to be an exciting and prosperous year. The company, owned by Investec Asset Management, is pushing an exceptional new product while planning further international expansion. “We make investments accessible” is the company’s purpose.

From establishment more than two decades ago as a tech/software division of Investec, serving the changing needs of investors and asset managers, Silica has grown to become a vital aspect in the transactional and administrative process for South Africa’s unit trusts and mutual funds.

By using technology, data, and the power of digital, Silica is helping to drive efficiencies and costs so that investments can be managed more efficiently. CEO Garth Smith tells Enterprise Africa more about the company’s new Graphite solution, and how it will further drive productivity for clients.

“We had clients of clients who came to us saying they are dealing with big asset managers and they are sending individual instructions to our offices to be processed,” he begins. “They asked if there was a better way to send instructions to us. We started looking at how people are executing on their investments and we realised that things had not changed for many years. The world of technology has changed and we thought we could build an orchestration interface, or a switch, that people can connect to through their own channels and we can then manage the execution down to the asset managers. That is where the idea for Graphite came from.”

GRAPHITE

Graphite is a system designed to integrate into the operations of clients so that investment managers can seamlessly access funds quickly and affordably. The technology combines with existing software so that all information and instructions are captured at source through a single cash and application process. The performance of funds can be tracked in real time and this allows clients to adapt their service quickly. The system is also cloud-based resulting in cost savings on the administration side.

In 2017, Silica approached Investec Asset Management with the idea for the new product. After development and piloting, Graphite was officially launched in May 2019.

“The way we went about it was to be very different from a traditional business,” details Smith. “We wanted different thinking and we took on a strategy of building a team completely outside of our existing team. We based the new team in Cape Town and we partnered with an expert company, NML, that could build the technology and integrate it back into Silica. NML is still our partner in the journey and we are still in the build stage but we do have accounts live on Graphite.”

For clients, Graphite makes the investment process smooth. For Silica, the solution will allow for growth in customer base and will help with the company’s consistently growing digital credentials.

“If something comes in via Graphite it is included in the price of Graphite and we don’t have to charge that back to asset manager, so it is a very cost-effective channel.

“Traditionally, our clients are asset managers, but we are now talking directly to wealth managers,” explains Smith. “In the past, a wealth manger would have their own software to handle analysis and the portfolio of investors. They then need to decide on the switch to a model, add more, or withdraw. Then, they would have to go to whichever service provider they were using and recapture the instruction, write it on paper and send it in, or go onto the website of the provider and capture the instruction electronically. What Graphite does is goes directly to the wealth managers front office system through an interface and when the portfolio order changes, they can hit an execute button in their application, send to Silica in real time, and send a response back detailing the transaction. Previously, this would have been a two- or three-day process. We have taken out a lot of the bulking and at any time we can pull statement information.

“In the current situation, because the files are separate, there has to be a data dump or files coming in on a daily basis. Now, data is available as it stands at the moment through our systems. We believe it will help build our client base but we also think it will take friction out of the investment process in South Africa for advisors and wealth managers.”

NEVER STANDING STILL

Silica is a team made up of industry professionals with a deep understanding of the market in which the company’s technology and innovation is put to work. Smith himself is a veteran of Stanlib, Standard Bank and Liberty Life. Embedding Silica further into the operations of its clients is important. This is why the company is never standing still and is always on the lookout for opportunities where improved tech and digital revolution can improve ageing systems.

Back in 2018, Silica partnered with IRESS to automate trading of unitised investments, digitising the process to drive costs down for all players in the value chain – a partnership that thrives today.

“Stockbrokers are under pressure and volumes are down so a lot are trying to get into the retail space so we are partnering with IRESS, using a system that uses fixed messaging and allows clients to trade electronically on the JSE. We interface with that and we have a big client that has a portfolio management system that can trade equities and unit trusts. We are widening the channels that are available to unit trusts. Our asset management clients like it as it gives them a broader distribution that they don’t have to grow by themselves and it reduces cost,” explains Smith.

Silica has proven its ability to go beyond software development. As industry-leading experts in the trade technology space, utilising knowledge of the market, the company is continually but sustainably growing its product and service portfolio to help grow the business of its clients.

“We built a digital KYC capability with digital signatures and wealth managers can add these components to their front-end so that they make transactions completely electronically. The KYC does a huge number of checks across multiple data bases including home affairs, police and more, giving a risk overview in just seven seconds.

“We have added our own retirement annuity and other products so that independent wealth managers can get access. If they don’t want to go to one of the big brands to access these products, they can use ours. We don’t market them externally, but we see it is a building block for wealth managers and large financial advisors to use to build their practices and grow their brand,” outlines Smith.

The result – a climb to the top of the industry and a strong position in terms of market share and reputation. Currently, Silica has 65-70% of the market in South Africa, helps customers to consistently grow their asset base, and is expanding internationally.

Of course, the Graphite solution remains the focus in the short-term and Smith and Silica are keen to make the most of a clear path forward before competitors begin to catch on to the strength of the product.

“Graphite is a very unique offering and does not have a direct competitor at this stage,” says Smith. “Some of the traditional LISP providers see themselves as competition but we don’t treat them as competition as they could become clients of Graphite. We are saying that their differentiator shouldn’t be execution as that is what gets commoditised. If you want to commoditise, come to a place where that can be done at scale. We rather focus on the front-end, the channel, the experience of people that are using products and services. That is not what Graphite does. Graphite does not put its own channel out there. We want to partner with people that own that and can service that themselves. From a Graphite point of view, we are not seeing competition apart from a couple of software providers that are trying to come into our market – that is the closest we have for now.”

NEW GEOGRAPHIES

Having conquered much of the South African trade technology space, the next growth frontier for Silica is abroad. The company is already active in the UK and the Channel Islands, and Smith sees further international expansion as obvious and necessary.

“There is a limit to how much you want to saturate a market with one client. When we have Graphite going, our next thing will be to go into different geographies,” he says. “We believe one of our strengths is that we work in a niche, we are very focussed and we don’t spread ourselves too thin. We are not trying to rush out and get growth at any cost. We have built up what we are doing in the local market from a third-party administration point of view, we’re getting Graphite going, and only when we get to a certain maturity level on that curve will we look to expand into other markets.”

This carefully considered approach to growth will begin in the UK and will eventually move East.

“We have around R500 billion outside of sub-Saharan Africa, with R200 billion of that in the UK, so it’s not huge,” he adds. “We have toe holds there and that keeps us relevant in the market so we would look at growth in the UK. We are also interested in looking to the East, to India and Asia, and see what is happening in those markets. We understand the UK a lot better and there are some very dominant players in that market so that would make it interesting for us.”

Expansion outside of South Africa will result in further exposure to global best practice and world-class service providers which is only a good thing for the business.

“There is a huge amount of price pressure happening in this industry globally and I think there is still much to settle after Brexit and other influences. We have chosen a path where we like to have deep knowledge of what we are doing and where we can partner with our clients. Some other companies might be more aggressive in their growth strategy but we have a shareholder who likes us to ensure we can maintain service levels and carry on being innovative by bringing new products and services to the market,” says Smith.

He confirms that more new ideas are in the pipeline but remain in the development stage while Silica decides on its medium to longer term strategy.

SOUTH AFRICAN ROOTS

While many companies that have achieved the success experienced by Silica over the past two decades are quickly bought up and incorporated into large listed organisations, this is one business that is not being touted around for sale or expressing desire for independence from shareholders.

The only change that Silica will face in the future will be the movement of its owner Investec Asset Management out of the listed Investec group, becoming Ninety One Fund Managers – itself a listed entity on the JSE. The name Ninety One reflects the heritage of Investec Asset Management, established in 1991 and the rebrand and demerger is aimed at providing a better service and outcomes for clients as an independent asset manager.

Smith, who joined Silica in 2015, details more about the initial development of the company as an answer to a call from Investec.

“Investec Asset Management needed a new registry platform for unit trusts and mutual funds. The local incumbent was not seen as good enough going forward. It was felt that they were not investing enough in the platform and, because of the environment of the time, there weren’t any real international players in the market,” he details.

“To try and get an international player in the market was expensive. So, they decided to build a proprietary system in-house. While they were planning, they decided to take an analyst that who knew a lot about the business, Daniel Micali, and brought in Michael Prentice as MD, and they partnered with a local software development house. They were tasked with building the software for a client registry business system for unit trusts. They got it going and Investec Asset Management said ‘if you can build this and sell it to a couple of new clients within two years, we will spin you off into a separate company as opposed to you just being an in-house department’. They did that successfully and they built a very nice platform – that is how Silica started as a software company.”

Next, after around five years of success, Silica was starting to dominate its market and understand its clients needs further. The obvious next step was into third-party administration – this was a request from local and international clients. No one wanted to buy just software; everyone wanted it as part of a service package.

The Silica team went back to its shareholder and explained about their findings in the market. Investec agreed and became the first and anchor client for Silica’s third-party administration services. This move helped the company to grow into the UK and helped Silica to pick up more clients while converting software clients to TPA at the same time.

The next step in the Silica growth story was moving digital. Everything was in place but the company needed to understand more about the appetite of its clients and their customers.

“Around six years ago, we started talking to clients and explaining that if they want to drive cost, convenience and customer experience, they have to start looking at digital. One of our large banking clients, as well as Investec, was very keen to adopt this and get into the web space so we started building websites for clients as well as integration into their larger group channels so they could start moving people from manual to digital,” explains Smith.

“Asset management is quite different from banking. In online banking, people are generally transacting and viewing bank accounts fairly regularly whereas, from an investment point of view, you buy in and then you wait. You generally only view accounts or make switches very infrequently. From an advisor space, people are moving quickly towards digital.”

Silica is firmly behind the move to digital and, despite making significant revenues from manual transactions and data capture, is ready to assist clients wherever necessary on the journey toward digital ecosystems.

“We’ve had to undertake a lot of insight to get our business ready for that because we had a high number of staff that were purely data capturers. Our business has gone through an interesting cycle. We started off as pure technology and became very much an administrator and we are now in a blend where technology is starting to come back to the forefront again.”

INVESTMENT CONSTRAINT?

During Tito Mboweni’s budget speech in February, the Finance Minister announced that economic growth would likely be slower than previously expected, reaching just 0.9% in 2020.

For a thriving investment climate, this is not good news. But Smith is not worried and says that Silica is helping clients to save money during tough times by taking trading digital.

“Our clients are under pressure” he admits “but many are realising that moving to a digital service does bring down cost, it makes things more scalable, and that is where we still see clients investing. Competition has become more fierce as the pot of money isn’t growing. Many of them are introducing offshore funds to their portfolios. Looking at South African GDP as a percentage of global GDP, you should not have all of your money in one geography which is such a small part of overall world GDP performance. We are seeing people trying to find platforms that allow them to connect to funds so that they can move money offshore. That is part of the Graphite journey. In the longer-term, Graphite will connect with international fund managers so that those ranges can be sold locally.”

The expectation is that meaningful economic growth will not return to the country until after 2021 but Silica remains firmly set on a growth trajectory thanks to its exposure to international markets and its integration with many industry leading clients at home in South Africa. Stats SA found that for the last quarter of 2019, the finance industry managed to post an improvement of 2.7% while almost all other posted contractions.

THE UNIQUE, THE SPECIAL

Like any business, especially tech businesses, people are at the heart of everything that has been achieved and everything that is planned for the future. The company admits that its success is intricately tied to its people and so there is a constant focus on nurturing and developing an outstanding company culture.

Perhaps the one shared factor across all successful business operations, a positive culture is simply a must if you are to succeed. At Silica, culture has received much attention and is now helping to convey the brand message about ‘making investments accessible’.

“Years ago, we redefined our purpose,” says Smith. “We decided we need to be more than just a company with a statement around being the best third-party administrator in the market. We came up with the purpose of ‘making investments accessible’. We do that by providing our clients, asset managers, products and services that help them to growth their businesses – that is a core driver for us.”

To ensure the company’s innovative culture and human-centric working environment, Silica invests heavily in the upskilling of its people – even if that results in them leaving.

“We need to look at our culture and the values and behaviours that sit behind that. You can have a value statement but unless that is creating behaviours, it’s just writing on the wall. We put a lot of work into our values and there is a lot of literature behind that. Part of it is about being a lot more transparent. When you are digitising your business and driving a lot of automation there is a potential impact on staff so we decided that we have to create a learning culture. We have developed the learning academy where staff can access courses and partner up with mentors, work with them, and eventually upskill themselves. We might not be able to absorb all of those skills but it makes for a general market which is highly skilled. That is totally free for all employees. We have also partnered with other digital learning organisations to ensure that our staff take advantage of opportunities to improve their skillset and remain relevant. We celebrate as much if staff upskill and gain a role elsewhere as if a staff member upskills and stays with Silica,” says Smith.

This idea has been introduced to ensure a fluid mindset among the company’s 480 people – there is no chance of getting comfortable and things going stale.

“We have to take people on a journey,” adds Smith. “If we have people who are in a role that might be disappearing, we have to explain why and be open about things, offering new programmes to reskill. People have to be adaptable. Things that are ok today in terms of service levels will have changed tomorrow. The world is changing at an incredible pace. If you think your role won’t change, the expectation of your clients will always increase.”

By mid-2020 Investec Asset Management will be Ninety One Fund Managers, Graphite will be fully up and running, Silica will be further down the line with international expansion, and new faces will start arriving at HQ. The company is proof that the investment world never stops moving and this is why digitising, and partnering with the best, is so important. For Smith, there will be no complacency.

“It’s been quite a journey. It has been very hard. We are optimistic about the future but fully aware that is not just going to happen. You have to make tough choices. If you want to build a great culture, it has to be owned and led top down, because if it’s not, it doesn’t set in.

“It’s not that we don’t see any headwinds, but we do believe there is opportunity out there.”

Some of the biggest names in the business trust Silica: FNB, Stanlib, Nedgroup Investments, Investec Asset Management, Old Mutual, Alexander Forbes Investments, Prudential Investment Managers, Capricorn Asset Management, Ashburton Investments, Sanlam and more are all running Silica systems, and all have benefitted. Technology is the backbone of business that helps set the best apart from the rest. For Smith and the entire team at Silica, the future is certainly looking bright.