Sprott taps institutional investors for new fund

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Sprott Inc. will sell a pile of stock to an institutional shareholder to launch a new global macro hedge fund that has been on the CEO's mind for months, sources say.

The company said Friday it would issue the shares at $3.30 to raise $25-million to seed the new fund, which represents an almost 8 per cent discount to yesterday's closing price. The press release did not officially link the capital raise to the new fund.

Still, its a step forward in a plan that Sprott's chief executive Peter Grosskopf voiced interest in months ago. At the time, Mr. Grosskopf said he wanted to reach beyond the usual retail investor customers to bigger institutional players for its funds.

As of the fall, institutional clients made up about one-twentieth of the company's assets under management.

But the move also represents an effort to work alongside other hedge funds or private equity groups as partners. Right now, much of Sprott is held by company insiders, including founder Eric Sprott, but it's possible that more outside groups could invest in the company in the future.

The shares being sold in this deal represent a dilution of 4.4 per cent. So far, Friday's buyer is still unknown.

It's a tough climate for Sprott to raise money in, since the stock price is down more than 10 per cent over the last year and nearly 63 per cent off its 2011 peak. Sprott's flagship hedge funds have also struggled with two years of weak performance.

Still, the company has $61-million in cash on its balance sheet and more than 200 employees, through whom it manages roughly $10-billion in assets.

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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