Hedge fund manager Eric Sprott on Friday, November 25, 2010.Darren Calabrese/The Globe and Mail
Sprott Inc. is changing focus and investment strategy, as its gold-focused founder Eric Sprott prepares to step back from daily fund management.
The company has been "building a team around" Eric Sprott as a way of succession planning, and Mr. Sprott will cede daily management of his flagship funds by the end of 2014, the company said in an earnings call with analysts Thursday. Mr. Sprott is the largest shareholder in his namesake firm, and he currently owns nearly 35 per cent of the company.
Sprott Inc. management say the company is moving to a team-based approach to fund management, and portfolios will now be more actively managed, with additional focus on reducing risks, said Peter Grosskopf, Sprott's chief executive, on a call with analysts Thursday. "Results have fallen far short of our standards in the last two-plus years," he said.
Volatile prices of commodities and resources have badly hurt the firm in recent quarters, and the third quarter results Thursday still show signs of strain. Sprott's net sales were positive, and profits were up to $13.5-million from $11-million this time last year. But assets under management fell to $7.3-billion from $10.3-billion in 2012, and lower-fee products are now making up a higher percentage of the total. Sprott's management fees dropped by 31 per cent in the period, to $19.5-million. Sprott Inc.'s stock is down nearly 32 per cent in the last year.
While hedge funds and offshore strategies are still in redemptions at Sprott, domestic mutual funds sales are building up steam. The firm has been cutting costs, and total employees have dropped to 181 people, from 197 one year ago.
Sprott Inc. became known for its deep-rooted philosophy that gold and silver are safe places for investors in times of global market uneasiness. That message was championed by Eric Sprott, whose hedge funds outperformed in the 1990s and early 2000s. But now that commodity prices and resource stocks have lost their lustre, management wants to turn the firm into a more diversified and protected company, while building on its roots in precious metals.
"Our investment team has taken the necessary steps to position our resource-focused funds for an eventual recovery," Sprott Inc.'s release noted. "We will continue to add new investment capabilities, while looking for opportunities to consolidate or eliminate uneconomic funds."
It's a plan that involves launching new investment products such as a resource ETF planned for the U.S. market, increased active management of the firm's funds, and strategic international acquisitions.
Mr. Grosskopf said Sprott Inc. intends to consolidate asset managers with a focus on precious metals now, while prices are low, so that the company has a broader global footprint when the sector eventually recovers. But he pledged, however, that he would purchase cautiously. "Many resource companies will not survive this downturn, and we need to be careful where we invest," Mr. Grosskopf said.
In the third quarter, Sprott Inc. wrapped up its acquisition of Sprott Resource Lending Corp., which provides financing to mining and energy companies, and it later promoted Steve Yuzpe to head of Sprott Resource Corp. That process left the company with $350-million in capital to spend on launching new funds, making acquisitions and changing the structure of the Resource Lending unit to attract more institutional investors. Sprott Inc. also sees private equity investments in "out of favour commodities" as a key area of growth for in the years ahead.
One thing is certain – the changes will require patience from the firm's investors. That is especially true of areas such as private equity, as well as in foreign investments and partnerships, all of which require relationship building.
But Mr. Grosskopf assured investors that the company does "not intend to wait passively for a rebound."
Editor's note: An earlier online version of this story incorrectly said that Steve Yuzpe was promoted to CEO of Sprott Resource Lending Corp. In fact, he is head of Sprott Resource Corp. Also, the article's headline incorrectly said Eric Sprott would step back from daily fund management by 2014. In fact, he will step back by the end of 2014.