Sprott Inc (SII) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2011 second-quarter conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) As a reminder, this conference is being recorded today, Thursday, August 11, 2011.

On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the Safe Harbor provision of the Canadian provincial securities law. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter and Sprott's other filings with the Canadian securities regulators.

I will now turn the conference over to Mr. Peter Grosskopf, Chief Executive Officer, Sprott Inc. Please go ahead, Mr. Grosskopf.

Thank you and good morning, everyone. With me today is Steve Rostowsky, our CFO. Our 2011 second-quarter results were released this morning and are available on the investors section of our website, where you can also find the financial statements and MD&A.

I'll start off with a review of our financial performance during the quarter. The correction in precious metal prices and particularly the smaller-cap gold and silver equities hurt the performance of a number of our funds during Q2. However, that correction proved to be short-lived, and we have seen prices bounce back strongly, with gold reaching new highs this week. Fortunately as well, the financial performance of the Company we believe continued to be strong during that period of time.

AUM for the quarter was CAD9.3 billion, down about CAD400 million from the end of Q1 due to the correction that I spoke of. Net sales of funds and related products for the Company were strong in the quarter, CAD565 million.

We generated CAD37 million or more in management fees, and our corresponding EBITDA was CAD14.6 million. However, our base EBITDA, which is the measure that we really use, is CAD18.1 million for the quarter, or CAD0.11 per share.

The net income during the quarter by CAD7.5 million or CAD0.04 per share; and Steve will highlight some of the noise in that number during his comments. And yesterday we declared a CAD0.03 first-quarter dividend.

We certainly had an active year so far in 2011, launching new products, continuing to build assets in our specialty products franchise, and building what we think is a sustainable base for performance going forward. We reached a significant milestone recently, passing CAD10 billion in AUM.

I have to say with good performance since that period of time and just given the overall leverage in our model, that number can change by hundreds of millions a day, and we could easily be pushing CAD11 billion in the near future. The milestone we think is important because it elevates our profile on an international stage, give us scale generally considered necessary to attract investment from larger institutions.

Another important highlight was that in July we expanded our fixed-income product suite with the CAD220 million IPO of the Sprott Strategic Income Fund. We have generally been very pleased with the building of our fixed-income franchise under Scott Colbourne and his team.

Investor demand for precious metals remains strong, of course. Year to date we have raised CAD650 million or so from the follow-on offerings of the Phys Units.

Sprott Consulting, the private equity direct investment arm, that portfolio of managed companies continues to perform well. Some highlights are that Orion Oil and Gas recently merged with WestFire Energy. Sprott Power continues to advance its assets and has now begun generating revenues.

Sprott Resource Lending continues to liquidate its real estate portfolio. We are very pleased with the building of the resource loans that we have on our books so far.

I will give you a quick update on our integration and progress with the Global Group of Companies. I think one important highlight in the quarter is that Paul Meehl took over as CEO of our US brokerage business. That is not to say that Rick Rule is going anywhere, but we needed a strategic head for that division as we grow it.

Paul has a very strong operational background; comes from RBC Dain Rauscher; and is tasked with the challenge of growing that business. And it seems to be going very well.

We continue to work on integrating our US operations, accounting compliance, marketing, IT. Most importantly, on sharing deal flow and performance-related intelligence with them.

Expanding our US retail and high net worth presence remains a priority. Probably the most important progress we made with Global in the quarter was to properly structure and allocate the team and for our US Managed Account platform. It is going to be managed by Jeff Howard.

We are in the position now to begin rolling out this product in the US this fall, so that is a very exciting development for us. It dovetails nicely with our presence on the US retail channel through the Phys products.

As I mentioned, one of the most important, if not the most important, benefit of the Global acquisition is the exchange of information that is taking place between the two groups. We are definitely beginning to leverage the strengths of our combined investment team and our combined private client team, ensuring new ideas and deal flow.

I will now turn it over to Steve to talk about Q2 in more detail.

Thanks, Peter. I'll start with a look at our mutual fund performance. As Peter noted, the correction in precious metals prices as well as energy, particularly silver and precious metal stocks, hurt our fund performance for the quarter, with the majority of our mutual funds posting negative returns.

Our hedge funds, which is the next slide, were also down for the quarter. However, again as Peter mentioned, with recent volatility in the markets we are now beginning to see the benefit of our long/short hedge fund strategies, with almost all of our hedge funds having erased their performance deficits as of yesterday.

Turning to Assets Under Management, our AUM was down by approximately CAD400 million on the quarter from CAD9.7 billion at the end of Q1. On a year-over-year basis, however, AUM increased by CAD4.5 billion.

Net sales for the quarter were CAD565 million compared to CAD104 million in the second quarter of last year. Let me provide you with a little bit more color around our net sales.

For the quarter by category, net sales were CAD4.5 million from mutual funds overall; domestic hedge funds CAD58.3 million; offshore funds added CAD28.2 million; and bullion funds CAD372.2 million, including CAD363 million from a follow-on offering of Phys and the launch of the Silver Bullion Fund.

We also added a large offshore Managed Account in the quarter. It essentially follows the offshore hedge fund strategy with some slight modifications. In addition, Sprott Resource Lending also contributed to net sales through the continued transition of its real estate lending portfolio to its resource lending portfolio.

Market value declines impacted AUM by CAD951 million. Most of our funds decreased in value. Leading market decliners were, not surprising, related to fund size with the Canadian Equity Fund down CAD310 million; the Gold & Precious Minerals Fund declined by CAD106 million; Hedge I and II by over CAD90 million each; and the Exploration Partnerships collectively fell by CAD95 million. The only material market value appreciation was Phys, which added CAD64 million for the quarter.

Turning now to AUM by product type, as you can see we continue to diversify our AUM across product classes. On a year-over-year basis, most of our AUM has come from our Bullion Funds as well as our onshore mutual funds. As of June 30, 2011, the Bullion Funds represented CAD2.5 billion of our total AUM, compared with CAD900 million at the end of Q2 2010. Bullion funds now account for 27% of our AUM, and this percentage may increase further in Q3 when we account for the Phys follow-on offering completed in July.

Over the past 12 months to June 30, 2011, net sales have totaled nearly CAD1.8 billion. Market value appreciation added about CAD1.3 billion, plus the addition of about CAD700 million of AUM with the Global acquisition.

As you can see our AUM is now diversified across asset classes and asset types including mutual funds, hedge funds, specialty funds, and direct investments. Sprott Consulting's managed companies accounted for CAD644 million AUM at the end of Q2, up from CAD333 million at the end of Q2 2010. Sprott Resource Lending Corp is a new managed company since last year and has added about CAD190 million to our AUM.

Moving on to revenue for the quarter, total revenue increased by 47.7% to CAD39.3 million from CAD26.6 million in Q2 2010. Management fees increased by 53.8% to CAD37.2 million from CAD24.2 million in Q2 2010, as average monthly AUM grew by 83.6% over the prior period. Management fee margins as a percentage of average AUM fell from 1.8% last year to 1.5% this year as the proportion of low fee assets, specifically bullion funds, increased dramatically.

Commission revenue for the quarter was CAD4.9 million compared to CAD0.4 million last year. The majority of the commission revenue was generated by Global Resource Investments, with the remainder coming from Sprott Private Wealth.

Losses from proprietary investments were CAD4 million during Q2 2010 compared with a gain of CAD900,000 in the second quarter of last year. I will talk more about this on the next slide.

So in looking at slide 12, summary financial information, total expenses for the quarter were CAD28.1 million, up 78% from Q2 2010. The increase is mainly due to the acquisition of the Global Group of Companies and higher costs associated with the growth of the business.

Of particular note, compensation and benefits expense for the second quarter was 94% higher than in the comparable period last year. This is a reflection of significantly higher contribution to the employee bonus pool based on net operating income, the addition of 32 global employees, and the general growth in all our businesses -- Sprott Asset Management, Sprott Private Wealth, Sprott Consulting, and all the groups that support those businesses.

Base EBITDA, which reflects the performance of our core business, excludes the impact of gains and losses on proprietary investments, increased by 76.4% to CAD18.1 million or $0.11 per share from CAD10.3 million or CAD0.07 per share in Q2 2010.

Net losses, largely unrealized, on proprietary investments were CAD4 million for the quarter. After tax-effecting these losses, the result is a reduction in earnings of about CAD0.02 per share. In addition, the amortization of the finite life intangible assets related to the Global acquisition, plus the expensing of stock-based compensation relating to the Global earnout shares, impacted earnings by about CAD0.01 per share, the latter being an ongoing cost.

Net income was CAD7.5 million or CAD0.04 per share compared with net income of CAD7.8 million or CAD0.05 per share in Q1 2010. Without the two items that I just discussed -- the losses on prop investments and the amortization of stock-based comp and intangible assets -- net income would have been CAD0.07 per share. Then finally, as Peter mentioned we did declare a regular dividend of CAD0.03 per share yesterday, which will be payable to shareholders of record August 18 and payable September 2.

I will now pass it back to Peter for closing remarks.

Thanks, Steve. I'm going to deviate from the schedule of the presentation a little bit to focus on what I think is really important for our shareholders and investors and clients to consider going forward. The first one is that since the quarter end our funds have done, we think, extremely well. I guess that is no surprise, considering our positioning.

But the impact on our financial statements and on our financial performance going forward can be extremely significant with this performance change. Just to give you an example, Steve told me that this morning approximately 30% or 40%, somewhere in that range, of our assets are now in performance fee generating territory, which of course is the single most important thing for our clients and it's the single most important thing for our shareholders. So things can change very quickly, and this is a model that is now very large and very powerful.

In terms of our outlook for the markets, we believe that markets will continue to be under pressure, resulting from a combination of things that we have been talking about for a long time. So these are themes that we have believed in, that we have positioned ourselves for.

Weak economic fundamentals; a tapped-out consumer; tapped-out governments who can't get their debt under control and who will, in all likelihood result in more quantitative easing. And I believe that this is -- and we believe that this is something that is finally starting to result in investors losing faith in the overall financial system.

What you are getting is you are getting weak deposit bases at the banks; in some countries, decimated deposit bases. And you are getting weak currencies across the board.

So we believe that our funds are well positioned for this environment. We have been looking for it for a long time.

It is not easy. It is not easy by any means. It is amazing how many of our brethren in the financial community have believed in the same themes and how different the investment positioning is.

But we are sticking with our thoughts, which is that gold is the place to be. Gold and silver shares have dramatically underperformed bullion, and of course they are much more levered to that theme. We think there is a lot of money on the table for these gold and silver producers. So we are looking forward to some very powerful performance, and we haven't changed our positioning one bit.

I'll just talk about the strategic positioning of the firm. One of the things that is becoming more apparent to us is that we are building a very unique global platform.

We are diversified by geographies. We are increasingly diversified by multiple asset classes and types. We are getting into more scalable investment management products now. We are looking at other strategies which will use our strengths.

And we have multiple sales channels, which is very important. In each case we are looking at products that dovetail with our main focus, which is performance fee generation.

And we are publicly listed, so we have the capacity to build the type of scale through both internal investment and through external mergers and acquisitions. In marketing, compliance, systems, and operations we are really poised for a long period of growth, I believe.

We continue to build and spend money and attract an industry-leading investment team. We want to be the best in each area that we are focusing on.

We do think that this market turmoil -- well, we know that this market turmoil is going to give us new M&A candidates, and we are looking very closely at both small product-oriented acquisitions and much larger scale-type acquisitions, both in Canada and globally. So we are very busy.

Turning to the next page, major initiatives, most of our focus is on organic growth. We have got new international institutional sales efforts that are ramping up. I will say for the first time that we are considering a new global fund which takes advantage of our undeniable reputation as one of the best resource teams globally.

This US Managed Account expansion we think could be a very powerful tool from which to grow in the US. It is a great time to be Canadian. That is the platform we are going with. We have got a great team to do it, and we hope that it proves to be as scalable as we think it will.

We continue to look at lots of opportunities in our private equity and direct investment areas. So there is a lot going on in that, the Sprott Consulting area, and I expect that that will be a much bigger part of us going forward.

Then as I touched on, external growth, there is lots of potential candidates out there. There is good products that we think we can get into. So there is no shortage of opportunities externally either.

So with that, I will end the call and we will turn it over to the operator for questions.

(Operator Instructions) Paul Holden, CIBC.

Good morning. So, Peter, you did a good job highlighting the importance of performance fees from the hedge funds, sort of the general position of the funds. I am hoping we can drill down a little bit further in terms of relative positioning in bullion versus producing equities or development, or equities that are in the development stage. And maybe talk a little bit more about the short positions that the hedge funds have taken.

Okay. Well, Steve can give you a more detailed approximate breakdown of bullion versus equities. In terms of the defense or the short positions, we had to taken, I think, the appropriate steps in increasing our short positions across the board a few months ago. So we are very fortunate to have made that move and benefited from it strongly in the last month.

I am going to take a guess now; Steve has just gone off to get the exact answer. But I'm going to take a guess that we are probably net long somewhere in the range of 30%.

In terms of the bullion versus the share allocations, I am going to make a wild guess at this, because it changes. But I am thinking that the bullion positioning is probably about 25%; and again, I am merging different funds when I say that.

Okay. So bullion is about 25% then; equities you are saying about 75%. Is that right? (multiple speakers) one?

Of course, those aren't all precious metal equities, but the majority of them probably is.

Got it. Then in terms of the specific shorts, on a sector basis, it would be what you talked about before? US financial, US consumers, is that --?

Yes, that is the bulk of it, because that is where Eric's themes have been for a long time. But adding Paul Wong to our management team has been a huge boost to our ability to short across the board. So we have developed short positions in a variety of sectors now.

Got it. That's helpful. Then any update you can provide us on the performance of the LPs being managed by Rick Rule and potential for performance fees there?

Yes, we still have some pretty strong embedded performance fees, both in the Rick Rule portfolio. So to give you a broad a summary here we have got about -- just under CAD40 million in the Exploration Partnerships; and call it CAD30 million at Sprott Consulting; and call it CAD20 million in other funds.

So that is embedded. We have no idea when those will be realized, and the number does swing around.

Okay, that's helpful, though.

But I think a very important number is that we have got about -- just under CAD3.5 billion in assets in performance fee territory now. And that does not include Sprott Consulting or the -- it may include the Exploration Partnerships, but it doesn't include Sprott Consulting.

Right, okay.

So to answer your question a little bit more on positioning of the hedge funds, there is still a pretty big weighting in bullion on long side. Maybe 40% of the long side is in bullion, mainly silver. It has moved more into gold and more into gold stocks than physical gold bullion just because, as Peter said, we see more torque in those names. But there is about 40% in bullion on the long side.

On the short side, it is the same types of stocks as have been there for a while. A lot of financials, some merchandising and lodging, some industrial products, and a smattering of consumer products and others.

It is about -- so the positioning of the fund as Peter mentioned hasn't particularly changed, of the big hedge funds. They are pretty much sticking to the similar themes that we have seen evolving and emerging over time.

Great. okay, those numbers are very helpful. One final question is related to the -- you thinking about rolling out Sprott Funds in the US and using your distribution platform that you recently acquired down there. Any update in terms of launching Sprott Funds in the US?

Yes, so just to clarify, it is a Managed Account platform that we are really making more broadly available there. We are looking at other types of closed-end vehicles that are being discussed with us by third parties.

But it is really the Managed Account platform where we have got a direct sense of how to drive it forward. That is going to launch in September. Okay?

We are just at the point of sending a letter to the existing customers of that Managed Account platform in terms of how we are retooling it. Once that letter goes out, there are filings that need to be made; and then the marketing can begin in earnest to raise new funds.

So marketing will really start I guess in Q4 then.

Yes, for sure. We were hoping for September; if it is early October, I wouldn't be too concerned. So it is pretty soon.

Great. Thanks for your time.

Geoff Kwan, RBC Capital Markets.

First question I had was just -- obviously it's only been less than a week and a little bit longer in terms of the market pullback. Can you talk about what you have seen in terms of sales on the mutual funds and the hedge funds? Has it been positive or negative? Is it a gross sales or a redemptions issue, or both?

Well, I will talk about two larger-picture things and then I will have Steve answer the same question for the last week. But the bigger picture is we haven't seen a real impact on our sales. Those numbers are still holding in fairly well.

We have seen some clients who are getting nervous transferring funds between a more aggressive equity strategy and a more conservative fixed-income strategy. So we have seen some movements that are in some cases significant back and forth.

But the money has been and the sales have been stickier than we actually would have thought. Steve, you should maybe answer for the last week.

Sure. So, Geoff, what we have seen in the last week or two in August has really been a continuation of the trend of what we saw earlier. Which is a little bit of movement out of the equity-type funds, but strong sales in our income funds and a little bit in tactical balance, still positive. And particularly the bullion funds, the mutual funds, the gold and silver mutual funds.

So, net-net, we are not ahead or behind all that much. We are ahead a little bit on net sales; but there has been a definite shift, as Peter mentioned, from certain of our equity funds into income balanced and particularly bullion funds.

Okay.

Now, Geoff, one additional comment. Of this week, we are trying to advise our clients against that switch, okay? Because fixed-income markets have had a very nice run here.

We think there is a lot of money being left on the table on the gold equity side. So we are trying to get investors to stay the course with our equity fund, because it could well benefit a lot in the current environment.

Okay. The offshore funds, can you talk about how that progress is in terms of on -- let's call it the restarts, and the conversations you are having with those clients. Has the recent volatility, say since you been having conversations with some of these potential customers, is that having an impact?

Yes, it's the opposite of 2008. So we are getting bigger allocations and more allocations than we would have thought, and as you can see those numbers are growing. Some of them are asking for tailor-made type of solutions, and it is not a big issue for us to develop those. So you have seen those offshore Managed Accounts grow.

But we seem to be gaining momentum on the institutional side. That is why we are going to be making additional investments in staff, in institutional sales and relationship people. We really need -- it is product-dependent, too. We need to put a better product on the table that takes advantage of our whole team's management style, and we are going to do that.

So the short-term trend is encouraging. But it is really the long term we are focused on.

I mean, Geoff, it is a longer sales cycle, as Peter alluded to, on the offshore funds. So some existing clients from time to time for whatever reason rebalance or take some money off the table. Particularly where your performance is good, sometimes they rebalance. So sometimes we see redemptions and sometimes those tickets are fairly large, even though the underlying momentum is still good.

So, when you look at any particular month or any particular quarter it is not necessarily indicative of a trend. I think generally, as Peter said, there seems to be strong interest in the products.

Okay. Last question I had was I know prior -- I think it was last year you guys had talked about with respect to Eric and succession planning going down the road, to perhaps look for someone. Can you provide an update on where you are today, and how active you are, or maybe less active?

I'm not trying to say the [Chairman can] be leaving any time soon, but it's something obviously you want to be cognizant about at some point down the road.

Yes, we're really happy with where we are positioned right now. Okay? Eric is doing what he likes doing, which is focusing a lot on the macro and what is going on in the world, and sticking with new themes where he believes the torque to his outlook on the macro side will be especially large.

We have got a pretty big team behind him now that is helping him, and he is increasingly comfortable using that team to both scale his strategies and to assist him on the day-to-day running. So for all this talk about succession, we have already passed the point where we are comfortable exactly where we are.

Do we need one guy to come in and take over stewardship of all the funds from Eric? If we got that kind of a superstar, that would be fantastic, as it would be for any asset management company. But we don't need them.

Right now, Eric is happy doing what he's doing. He's going to be doing it for another 10 or 15 or 20 years. So, I would like to sort of put that issue to rest. This team is fully capable of continuing to do what Eric has been doing.

Okay, thank you.

Graham Ryding, TD Newcrest.

Hi, guys. Peter, maybe I could start with you, just dig down a little deeper on the Managed Account platform in the US. For your current client base, are they largely based in California, around where the Global Companies are based? Then how do you plan to grow that platform across the US?

Okay, that's a good question. I thought they might have been as well, when we first started looking at Global, but it's not the case. The clients are spread out over the US.

They tend to be long-term clients. They tend to be clients that have, for whatever reason, taken a real view on the resource sector -- be it oil and gas, mining, agriculture, other themes that Rick has had over time. Hard asset type people.

It has emerged of course from the background of Rick being a very, very early-stage growth investor, so very small stocks, very niche-y type of background. So these are sticky clients. Some of them are extremely high net worth, and some of them are mainstream investors.

What we see is that the Global lineup and their expertise, with the backing of our organization in terms of giving them scale, and the bump that they have gotten to their reputation from being affiliated with a billion-dollar-plus company, is just opening all kinds of doors for them. So we think that the Managed Accounts will be marketed in New York and Chicago and Florida, all over.

It is very similar to the approach we have seen one of our counterparts in Canada here take. It is a good time to be Canadian. It is also a good time to have had that tremendous track record that Global has, high 20%s in annualized compounding. So we can confidently go out and open accounts across the country.

Okay, that's helpful. So it sounds like there will be a lot of traveling involved in that salesforce as you try and grow that platform.

Yes, so we have got three dedicated to it now. Obviously they will be assisted from what we have in Canada. But we definitely will be taking some more trips to the US in the next year.

Okay. Okay, that's helpful. Maybe I can just quickly ask, you gave an update; 30% to 40% of your assets are in performance fee territory, you are estimating. Is that broad-based or is it largely sitting within your hedge funds?

It is mostly the hedges.

Only one mutual fund is positive right now.

Okay. Then just quickly jumping to -- I think you made a comment that CAD30 million in performance fees is from Sprott Resource Corp. Is that correct?

Well, it is mostly Sprott Resource Corp, but I mentioned it in the context of Sprott Consulting. Just that Lending and Power have only started to contribute to management fees, and until those business plans get a little more advanced they haven't kicked in performance fees yet.

Okay, but that CAD30 million, that has already been triggered. So it --?

It is not triggered, to be clear. It is kind of marked-to-market.

Oh, it is?

They've got a big holding there in the combination of WestFire and Orion. It's down in recent weeks because of the pullback in energy. So that a number could grow a lot larger; but it could also shrink.

Okay, but assuming things at the end of the year finish where they are right now, would that be a CAD30 million performance fee you would book?

No, because you have to liquidate it. The way the consulting companies work and away the exploration partnerships work is no different in that performance fees can't be paid until the cash is in the bank.

Okay, so you need an actual event that triggers that performance for you to be booked.

Right, and that is why when we mention the total, which is over CAD80 million, we say first of all it is very levered and it could grow quickly and it could shrink quickly. And secondly, it's subject to a rolloff period.

But I guess what is unrealistic is to assume it's all going to happen right now. And it is probably unrealistic to assume that it is going to happen five years in the future, because I think in reality these things tend to roll off over time.

Okay, so we should just think of them as unrealized gains at this point.

Unrealized performance fee income.

Yes, okay. Then lastly just on your real estate books, Sprott Resource Lending, can you give me any numbers around what you rolled over of that book and what you have been able to reinvest?

Well, we're going to be updating Sprott Resource Lending tomorrow, so that is their quarterly release. So I shouldn't talk about the specifics there. But it is broadly in line with our thinking on it.

Okay, that's helpful. Thanks.

Scott Chan, Canaccord Genuity.

Hi, guys. Most of my questions have been answered, so I just have one question. Peter, could you just provide an update on Sprott Private Wealth and potential launch of discretionary pooled products? Is that coming in the fall of this year, just --?

It is.

Is it?

Absolutely, so just yesterday we reviewed the client-facing presentation and talked about some of the structural elements of what we need to do there. But that is -- and I attended a client presentation where -- somebody wants to give us a commitment to be in that platform.

It is coming. We are hiring in the area. We have looked at some other interesting options in the area.

It is something that we feel there is a strong pent-up demand for. And we expect that we are going to start having money under management, I would say, September -- end of September, October.

Okay. Great, thanks. That's all for me.

(Operator Instructions) Jeff Fenwick, Cormark Securities.

Hi, good morning. I wanted to ask about the Bullion Funds. When you have been able to -- and the Physical Trusts, been able to continue to do follow-on offerings here. Clearly the market is working in your favor there.

Maybe you can just describe. What is your capacity to just continue to do that on a quarterly basis? Is there any limit in the level of activity? Is it just a question of demand?

And how big do you think you would like to be able to scale that side of your business?

Well, it's a function of a few things. The answer to the last part of the question is, there is no limit to how large we could scale that. Okay? So we could and easily manage CAD50 billion in those funds.

In terms of how and what are the triggers to raise more money, I will say first of all we will have probably at least one new product in that area. Secondly, it very much depends on when we think clients can get underlying performance on the bullion.

So you saw us do a follow-on offering on the gold side a month ago, and that was because we thought gold was going to go up. So it is a function of when the firm thinks is the right time to press the button on that.

We are very cognizant of the fact, even though we don't have performance fee income nor do we have a wide margin on that, those are clients of our firm. And if we are making them money they are going to be happy with us, and they are going to buy more products from us.

That is how we see that whole business. So it is a function of when we think the commodities are going up.

And then lastly because of the way the Trusts are structured, it is a function of the premium that is available there. We have to do deals that even after fees are accretive, so the spread has to be wide enough.

You have seen us do some innovative things. I mean we get approached by institutions that are very sensitive to the premium on the underlying. They come to us and they say -- we want some money in, on an accretive basis. And we can react to them on that basis. So it is a function of the clients, it's a function of the accretion, the underwriters.

And on the silver side, because this has been much commented about, it is a function of the fact that Eric believes that the premium in silver is warranted in the long run because the US doesn't have a lot of alternatives. And he's going to protect that premium.

So we could have raised hundreds of millions of dollars in that silver fund, maybe even CAD1 billion in that silver fund at one point in time. But Eric doesn't want to hurt the investors that are in there at a premium -- including himself. So it is a function of all those things.

Okay, great. Then just maybe moving down to the expense line there, you are obviously generating a decent level of commission income from the Global acquisition there. Is there an element of an offsetting percentage of that commission revenue that is getting counted in as compensation? So as that commission scales higher you get a proportional higher level of higher compensation underneath it as well?

Yes, that's correct. So the offsetting compensation expense is in compensation and benefits. It is not a separate line. It is buried in the compensation and benefits number.

Okay. Well, that's it for me. Thank you.

There are no further questions in queue at this time. I turn the call back over to the presenters for any further remarks.

Okay, well thanks everyone for your time today and for your support. I hope everyone has a good day and a good weekend. That's it for the call.

This concludes today's conference call. You may now disconnect.