August 6, 2009 / 12:15 PM / in 8 years

UPDATE 2-Sprott profit sags as equity rise hits hedge funds

* Q2 EPS C$0.04, in line with estimates

* AUM falls to C$4.4 bln vs year-ago C$7.7 bln

* Some hedge funds hit by market rally

* CEO sees “tremendous opportunity” in long side of market (Recasts, updates with CEO quotes, adds details)

By Jennifer Kwan

TORONTO, Aug 6 (Reuters) - Quarterly profit at asset manager Sprott Inc (SII.TO) was down by half as some hedge funds were hurt by rallying stock prices, while the company said opportunities still exist on the long side of the market.

Eric Sprott, who is president and chief executive of Sprott Inc and a consummate Bay Street bear, said some hedge funds did not fare well during the quarter due to the “massive rally in the market,” and as short positions were hurt by the upswing in stock prices.

A short position is the sale of a borrowed security with the expectation that the asset will fall in value.

Toronto’s main stock index .GSPTSE is up around 20 percent so far this year, with much of the steam coming in recent months as the market bounced off its March lows on optimism about a global economic recovery.

But Sprott said the market rally is not sustainable as the economy continues to face “major problems” despite massive government stimulus.

“We still believe there’s some tremendous opportunities on the long side of this market,” he said. “We are great believers in precious metals.”

Sprott added the fundamentals for gold are good, and “there are some very unique opportunities in the junior gold mining sector in terms of buying stocks very inexpensively.”

Toronto-based Sprott said second-quarter profit was C$5.6 million ($5.2 million), or 4 Canadian cents a share, down from C$11.4 million, or 8 Canadian cents a share, in the same period of 2008.

For the quarter, the company said a number of its funds logged strong performances, including Sprott Small Cap Hedge Fund, managed by Allan Jacobs and Peter Imhof, and the Sprott Gold and Precious Minerals Fund, managed by Charles Oliver and Jamie Horvat.

Assets under management, a key driver of revenue at money managers, were C$4.4 billion as of June 30, down from C$7.7 billion a year earlier and C$4.7 billion as of March 31 this year.

On a year-over-year basis, AUM was down due to the lower market value of portfolios and net redemptions, the company said.

For the quarter, revenue fell 41.5 percent to C$23.1 million.

$1=$1.08 Canadian Reporting by Pav Jordan and Jennifer Kwan; editing by Rob Wilson

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