Sprott Overhauls Flatiron Amidst Flagging Performance, Asset Drop

Dec 6 2012 | 11:06am ET

Sprott Inc.'s acquisition of hedge fund Flatiron Capital Management has gone sour in a hurry.

Less than six months after agreeing to buy the 12-year-old fund for C$10.7 million in cash and stock, Sprott is making big changes to the unit, including closing one of its funds. Flatiron's assets under management have fallen by almost half to just C$140 million, leading Sprott to restrict redemptions from its remaining funds.

Sprott said it shut the Flatiron Market Neutral Fund at the end of last month. In addition, Flatiron founders Steve Duenkler and Parm Kaliarai have been removed from management duties, although they remain advisors to the firm. In their place will be a group of managers from Sprott and Front Street Investment Management, for whom Flatiron managed its Strategic Yield Fund.

That fund lost 32% last month.

The move also comes after Sprott failed to raise more than C$20 million for its listed Flatiron Convertible Strategies Trust, forcing it to cancel the offering.

Facing angry investors on a conference call Monday, CEO Peter Grosskopf said that payments to Duenkler and Kaliarai were based on performance and asset retention. "They will suffer from the outcome here," he said.

"This has been a most unfortunate and most undesired situation for everyone," Front Street CEO Gary Selke added. "There are no winners here, just people who have suffered."

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