Of Note:

On the thirteenth of July, Peter Grosskopf was introduced as the new chief executive at asset-management firm
Sprott Inc., shares in the company jumped 14%.

A strong vote of confidence for the man tapped to succeed company founder Eric Sprott, a legendary Canadian

Tyler Anderson/Financial Post Magazine

Peter Grosskopf's appointment as CEO of Sprott Inc. is a homecoming -- with challenges

Back in the fold

David Pett, Financial Post Magazine ·

Tuesday, Sept. 7, 2010

On the thirteenth of July, the day that Peter Grosskopf was introduced as the new chief executive at asset-management firm Sprott Inc., shares in the company jumped 14%. It was their biggest intraday gain this year and a strong vote of confidence for the man tapped to succeed company founder Eric Sprott, a legendary Canadian investor.

No doubt, it was also an encouraging signal for Sprott Inc. shareholders. They've been waiting patiently for their investment to bounce back after the financial crisis and the recession that followed brought Sprott Inc.'s share price down from its June 2008 IPO peak of $10 to its current level in the neighbourhood of $4. It's a situation Grosskopf feels acutely. "None of us are happy with it," he says. "We all believe internally that there is a lot of work to do. We have to go out and execute better."

Indeed, breathing new life into Sprott Inc. stock rests on management's ability to squeeze greater profits out of the firm's main subsidiaries, Sprott Consulting LP, which manages resource fund companies, and Sprott Asset Management Inc., which runs the company's main mutual fund and hedge-fund business.

Achieving that goal, of course, is the purpose behind Grosskopf's appointment. A core challenge for Sprott Inc. has been earning performance fees, which are charged in addition to management fees for generating benchmark-beating returns. Now, with the management shuffle that elevated Grosskopf, at age 45, to the corner office, Eric Sprott is being released from management duties to focus on its strategic direction, as board chairman and -- most importantly -- chief investment officer of Sprott Asset Management, which controls almost $6 billion in assets.

Equally important, Sprott Inc. has added Grosskopf to its executive mix, not only as a company leader, but also a Bay Street veteran who comes to the firm with a solid reputation of his own as an investment banker.

Although Grosskopf is a newcomer to Sprott Inc., he is hardly a fresh face to its founder, Eric Sprott. The pair first worked together in the early 1990s, when Grosskopf joined an earlier Eric Sprott venture, the boutique investment firm Sprott Securities Inc., following stints at Nesbitt Thomson and Co. and RBC Dominion Securities.

Grosskopf recalls his earlier experience with Sprott as an exciting time and that he was inspired by the company and its founder's entrepreneurial and innovative approach to investing. So much so that a few years later he left to form his own, Newcrest Securities, with former colleagues from Nesbitt Thomson.

It wasn't long, however, before Grosskopf returned to the Sprott fold, at least in name. In 2000, he and his partners sold Newcrest to Toronto Dominion Bank. Grosskopf rejoined Sprott Securities as its president, although by that time the company had been sold and was soon to be renamed Cormark Securities.

As president, Grosskopf helped establish Cormark as one of Canada's top boutique investment firms. (According to Brendan Wood International, it has been rated as the country's No. 1 small-to-mid cap brokerage in five of the past seven years.) And it's this experience that will have the greatest impact on Sprott Inc.'s ability to increase its performance fees.

With Sprott's hedge funds mostly outperforming their benchmarks, the bulk of the work will focus on the firm's mutual fund line-up, which are carrying performance deficits. According GMP Securities analyst Stephen Boland, Grosskopf's appointment will help reverse this trend. Progress is already being made, he says.

"Although the majority of the mutual funds are not eligible for performance fees yet in 2010, we have assumed that this will change in 2011," he said in a recent note to clients.

For his part, Grosskopf sees Eric Sprott's investment style -- which includes heavy bets on gold, oil and alternative energy -- will be key to the company's future. "Eric has been outspoken and willing to be different," Grosskopf says. "He has had no concern for what others were doing in the industry and has always wanted to be ahead of the pack and position clients accordingly."

With Eric Sprott ultimately responsible for driving investment performance, Grosskopf's primary job will be to sell Sprott's ideas to the investment community. In this regard, much of his attention will centre on Sprott Consulting, which, among other things, advises Sprott Resource Corp. and Sprott Power Corp., two relatively new investment companies that have received little fanfare and yet combined, represent a market value of almost $800 million.

Unlike Sprott's mutual funds, which depend on retail clients to raise capital, these investments have access to capital through various channels including private placements and direct deals with institutions. Grosskopf says that's crucial in today's market because it helps build investments that position clients ahead of trends in the market.

For example, before Sprott Power came into being, power companies had been a largely neglected market and valuations had dropped, he says. "But this is going to be a great sector with big growth. With our team's background, we can help execute deals and raise capital to help grow this business," he says.

With the capacity to manage both traditional and alternative products, Grosskopf adds that there is a great opportunity to enter the U.S., where the market for investable capital is 10 times the size it is here. If all goes to plan, he expects Sprott Inc. to double in size over the next five years and says the share price can get back to $10 and beyond.

"The challenge right now is to prioritize and focus on what we know best," he says. "But I'm excited. There are so many underlying opportunities and so many things we are capable of doing."

Financial Post Magazine



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