Sprott Confirms C$1.5 Billion IPO

Date: Friday, April 11, 2008
Author: Bill McIntosh, HedgeWorld

Sprott Asset Management Inc., a leading Canadian hedge fund and mutual fund operator with $6.9 billion in assets under management, has filed a preliminary prospectus for an initial public offering of shares.

A report in the Globe and Mail, citing investment banking sources, said the IPO would seek to value the company at C$1.5 billion ($1.5 billion). It is expected that the offering will see $200 million of Sprott AM stock offered to investors. This would value founder, chairman and chief executive Eric Sprott's stake at C$1 billion, while reducing it to 67% from 78%.

Sprott AM operates seven hedge funds and six long-only mutual funds. The firm's flagship long-only offering is the Sprott Canadian Equity Fund with $2.1 billion in assets and 27% average annual return since inception in 1997. Its biggest absolute return offering is the Sprott Hedge Fund LP, which has assets of $640 million and a 30% average annual return since launch in 2000. The fund closed in 2002 when a successor, Sprott Hedge Fund LP II, opened, which now has AUM of $423 million and a 17.61% average annual return over five years.

Mr. Sprott is well-known for contrarian investing, having bet against financials early on, and for specializing in investments in the mining and energy sectors. The IPO comes up against a weak offerings market that has seen floats in Canada sink to their lowest in more than a decade owing to volatile equity markets, the credit crunch and the economic downturn in the United States.

The timing of the IPO has raised eyebrows. The Blackstone Group LP, Fortress Investment Group LLC and Och-Ziff Capital Management all came to market in 2007 and all trade at hefty discounts to their offering prices. With Sprott's funds massively exposed to resources, it is possible that Mr. Sprott is selling equity at a point where the bull market in natural resources is peaking. It is the second major Canadian hedge fund group to come to market, following the listing of Gluskin Sheff Associates Inc. in 2006.

Mr. Sprott has 35 years' experience in the investment industry and began his career as an analyst at Merrill Lynch. He founded Sprott Securities in 1981, which he divested to its employees after spinning off Sprott AM as a separate entity in 2001.

The proposed transaction will see Sprott Inc., the entity to be listed, acquire 100% of Sprott AM just before the offering closes. The syndicate of underwriters behind the IPO is being co-led by Cormark Securities Inc., Mr. Sprott's renamed former securities firm, and TD Securities Inc.