Blunt, outspoken and controversial, Eric Sprott is known for his commitment to gold (and now silver) as well as his knack for earning consistently high returns for investors in his stable of hedge funds. Everything about the company he founded in 2000, Sprott Asset Management, smacks of his personality. Aside from the fact all his hedge funds bear his name, he is also chief executive, chief investment officer and senior portfolio manager of the company.
Sprott launched his first hedge fund in November 2000. At the time it was only the third hedge fund in Canada. Sprott says he launched the hedge fund to position his clients better for a secular bear market. Now, with over $10 billion in assets under management, Sprott is the largest hedge fund manager in Canada.
Although known for his outspoken views, until recently he kept a low public profile. He says it has become more important to “make my presence felt a little in the gold and silver market” now the company has public funds.
“When you have $2 billion of people’s money you have to get out there and talk about it. I wouldn’t normally. The theory is so whacko that no one could get their head around it. ‘What do you mean we’re in a bear market? That doesn’t make any sense’.”
Sprott’s journey to the top is not without controversy. He has been criticised for his seemingly high-risk bets. Many consider his slightly eccentric investment style indicative of the man. His office, on the 27th floor of a tower overlooking Toronto’s financial district, is full of his collection of Canadian art, ancient money and medieval weaponry.
Despite his reputation for high-risk strategies, his funds have generated spectacular returns for investors. His first hedge fund, unimaginatively named Sprott Hedge Fund and now closed to investors, boasted a cumulative return of 718.1% to end July, compared with a negative 43.7% performance for the S&P 500 (CAD). The fund follows arbitrage strategies, seeking spin-off opportunities, and participates in select private placements in order to maximise investment returns. The investment team varies the long and short positions depending on its view of the domestic and international economy and market trends, including liquidity flows in the US financial system. The fund also overweights certain industry sectors and asset classes, such as cash and gold.
Sprott Hedge Fund II follows a similar strategy but is open to investment. Launched at the end of August 2002, its cumulative return since inception was a positive 149% at the end of July this year.
These two funds were followed by others, not all managed directly by
Sprott, but which he says should all end 2011 in positive territory despite the spike in volatility which resulted in a painful August for most long/short equity funds. “Hedge funds will do well in this environment. It’s a volatile market, going against the grain, so if you think a little outside the box, you have a better chance of beating the competition. Money seems to be coming into the area. It’s a pretty good environment for hedge funds,” he says.
However, he takes a less sanguine view of his own future when pushed to predict if assets under management will rise. “I would never make a prediction like that because everything is so damn uncertain. Maybe by the [end of the year] they will have closed the markets.”
This is a typical response. Sprott is known for his doom and gloom outbursts. “I look at the world and see reality; I see the issues. I don’t know what the solution is. Whatever it is, it’s not going to be a happy one. Either you print money or you become fiscally responsible. Both outcomes are not good for financial instruments,” he states. “That’s the worry, that the system is in meltdown.”
His advice for investors in these uncertain times is characteristic: “Make sure you own some physical gold and silver. You should buy it though a fund that has it for sure or from a bank.”
The beginning of Sprott’s love affair with gold began in 1999 when as a portfolio manager he saw the Nasdaq spinning out of control. “I had to assume when the mania ends you go into a bear market. So, I became a student of bear markets. How long does a bear market last? What do you do in a bear market? Unfortunately, bear markets last a long time. And the worst one was 1929 when history showed that the best thing to do was to buy gold and/or silver. You buy gold to protect yourself. So then I had to become a student of gold but luckily there were quite a group of active prognosticators who had done a lot of work on the gold market.”
Link to entire interview: http://www.sprott.com/Docs/MediaCoverage/2011/HedgeReview-small.pdf
Sprott launched his first hedge fund in November 2000. At the time it was only the third hedge fund in Canada. Sprott says he launched the hedge fund to position his clients better for a secular bear market. Now, with over $10 billion in assets under management, Sprott is the largest hedge fund manager in Canada.
Although known for his outspoken views, until recently he kept a low public profile. He says it has become more important to “make my presence felt a little in the gold and silver market” now the company has public funds.
“When you have $2 billion of people’s money you have to get out there and talk about it. I wouldn’t normally. The theory is so whacko that no one could get their head around it. ‘What do you mean we’re in a bear market? That doesn’t make any sense’.”
Sprott’s journey to the top is not without controversy. He has been criticised for his seemingly high-risk bets. Many consider his slightly eccentric investment style indicative of the man. His office, on the 27th floor of a tower overlooking Toronto’s financial district, is full of his collection of Canadian art, ancient money and medieval weaponry.
Despite his reputation for high-risk strategies, his funds have generated spectacular returns for investors. His first hedge fund, unimaginatively named Sprott Hedge Fund and now closed to investors, boasted a cumulative return of 718.1% to end July, compared with a negative 43.7% performance for the S&P 500 (CAD). The fund follows arbitrage strategies, seeking spin-off opportunities, and participates in select private placements in order to maximise investment returns. The investment team varies the long and short positions depending on its view of the domestic and international economy and market trends, including liquidity flows in the US financial system. The fund also overweights certain industry sectors and asset classes, such as cash and gold.
Sprott Hedge Fund II follows a similar strategy but is open to investment. Launched at the end of August 2002, its cumulative return since inception was a positive 149% at the end of July this year.
These two funds were followed by others, not all managed directly by
Sprott, but which he says should all end 2011 in positive territory despite the spike in volatility which resulted in a painful August for most long/short equity funds. “Hedge funds will do well in this environment. It’s a volatile market, going against the grain, so if you think a little outside the box, you have a better chance of beating the competition. Money seems to be coming into the area. It’s a pretty good environment for hedge funds,” he says.
However, he takes a less sanguine view of his own future when pushed to predict if assets under management will rise. “I would never make a prediction like that because everything is so damn uncertain. Maybe by the [end of the year] they will have closed the markets.”
This is a typical response. Sprott is known for his doom and gloom outbursts. “I look at the world and see reality; I see the issues. I don’t know what the solution is. Whatever it is, it’s not going to be a happy one. Either you print money or you become fiscally responsible. Both outcomes are not good for financial instruments,” he states. “That’s the worry, that the system is in meltdown.”
His advice for investors in these uncertain times is characteristic: “Make sure you own some physical gold and silver. You should buy it though a fund that has it for sure or from a bank.”
The beginning of Sprott’s love affair with gold began in 1999 when as a portfolio manager he saw the Nasdaq spinning out of control. “I had to assume when the mania ends you go into a bear market. So, I became a student of bear markets. How long does a bear market last? What do you do in a bear market? Unfortunately, bear markets last a long time. And the worst one was 1929 when history showed that the best thing to do was to buy gold and/or silver. You buy gold to protect yourself. So then I had to become a student of gold but luckily there were quite a group of active prognosticators who had done a lot of work on the gold market.”
Link to entire interview: http://www.sprott.com/Docs/MediaCoverage/2011/HedgeReview-small.pdf
