Eric Sprott Suggests Shortsellers Ruined Public Debut of Sprott, Inc.

One of the most profitable areas for hedge fund managers to find profitable shorts over the past 12 months has been in asset management stocks, particularly among the recent crop of IPO's. Alternative or vanilla, its been a less than memorable for aftermarket buyers of the stocks.

Indeed, there is nary a winner to be found in Och-Ziff Capital Management (OZM-NYSE), Fortress Investment Group (FIG-NYSE), Pzena Asset Management (PZN-NYSE), GLG Partners (GLG-NYSE) or Blackstone Group (BX-NYSE). And while the valuation compression might lead to some opportunities to get long, there is no historical valuation data to hang your hat on, and the valuation premiums garnered by the alternative managers might remain excessive to their vanilla peers. But are brazen shorts manipulating trading in the stocks?

Eric Sprott thinks it might be the case. Sprott is blaming a tepid reception of his Canadian asset management operation, Sprott, Inc. (SII.TO-Toronto) on short sellers:

Star hedge fund manager Eric Sprott admits he was taken aback by his company's less than stellar stock market debut Thursday, and figures short sellers were behind the massive trading volume.

“I have to believe or think or conclude that there must have been some significant short selling,” Mr. Sprott, the founder, chairman, chief executive officer and controlling shareholder of Sprott Inc., himself a short-seller of no mean repute, said Friday.

“I can't believe that on a 20-million-share issue that 12 million shares, approximately, should trade – it's ludicrous, ” he said in a telephone interview before stock markets opened Friday and the shares fell again. Globe and Mail

Priced at $10 in an issue that raised $200-million for Mr. Sprott and other employee shareholders, the shares of the highly regarded Toronto hedge fund company plunged about 7 per cent to $9.31 at the opening bell on the Toronto Stock Exchange Thursday. They finished the day at $9.84, having traded at or above the IPO price only very briefly at midday.

Of course many people are questioning Sprott’s theory; can you get a borrow and the stock right out of the chute?

Sprott might want to affix a muzzle to his mouth now that he runs a public company; rather innocuous comments can be taken out of context and you end up looking silly, and/or you just end up sticking your foot in your mouth. Bill Miller probably would like to retract some of his comments over the past year; there is often no upside to making off the cuff comments..

Too, fund managers know the asset management business inside and out, and can draw their own conclusions over the appropriate valuation for Sprott’s stock.

Although in many ways, this time it is different.

Although they practice a different form of capitalism north of the border, whining about the deal right out of the gate is unprecedented.

Eric should know better; he should just zip it and leave the valuation work to the investment community. His baby might not exactly be stillborn, but the Street will bury it alive if he weighs in with any more flaky pronouncements.

Eric Sprott: Short sellers tarnished my IPO
Globe and Mail
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