Sprott Incorporated (OTCPK:SPOXF) Q1 2016 Earnings Conference Call May 13, 2016 10:00 AM ET
Peter Grosskopf - CEO
Kevin Hibbert - CFO & Corporate Secretary
John Wilson - CEO, Co-CIO & Senior Portfolio Manager, Sprott Asset Management
Gary Ho - Desjardins Capital
Graham Ryding - TD Securities
Geoff Kwan - RBC Capital Markets
Aram Fuchs - Fertilemind Capital
Scott Chan - Canaccord Genuity
Good morning, ladies and gentlemen and thank you for standing by. Welcome to Sprott Inc.’s 2016 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the 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, May 13, 2016.
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 of Sprott's other filings with the Canadian Securities Regulators.
I would now like to turn the conference over to Mr. Peter Grosskopf. Please go ahead, Mr. Grosskopf.
Thank you, Operator and good morning everyone and thanks for joining us today. I apologize for the last minute scheduling issue, and for reporting on Friday the 13th, neither of which we like to do. On the call with me today are our CFO, Kevin Hibbert and John Wilson the CEO of Sprott Asset Management. Our 2015 annual results were released this morning and are available on our Web site where you can also find the financial statements and MD&A.
I’ll start on Slide 3 with a quick overview of our Q1 financial results. Our assets under management as of March 31, 2016 were 8.8 billion, up from 7.4 billion at the end of 2015. We are continuing to invest in our business and this is reflected in our Q1 adjusted base EBITDA which was $0.02 per share while net income was $0.01 per share. Both our actively managed strategies and exchange listed products grew during the quarter. Our actively managed strategies generated net sales during Q1 in what was a very challenging period for most asset managers, while our exchange listed products benefited from the affect of the transaction of Central GoldTrust. Our proprietary investments rebounded during the quarter, generating 11.5 million in gains due largely to the performance of our precious metal related investments. Finally, our balance sheet remains strong with approximately 300 million in investable capital.
Turning to Slide 4, after a long bear market precious metals are finally performing well as investors appear to have lost faith in the unprecedented central planning that has resulted in the phenomenon of negative interest rates. With global growth disappointing and the U.S. dollar becoming more volatile, gold and silver has been amongst the best performing assets this year and precious metal equities have posted spectacular year-to-date gains. Despite the strong performance this year, we believe we are still in the early stages of a recovery given the depth of the correction in the sector over the previous five years.
Our physical trusts have returned to growth adding almost 1.5 billion year-to-date through the completion of our exchange offer for the Central GoldTrust, as well as the secondary offering for Sprott physical units, John will talk more about that later. We’ve reworked the investment process for our actively managed precious metal strategies and they are now outperforming on both a relative and absolute basis. Our two gold miner ETFs are each up more than 60% year-to-date and we are seeing renewed interest investor interest in both our active and passive precious metal strategies.
With that, I’ll pass it over to John to give you an update on Sprott Asset Management.
Thanks Peter. At Sprott Asset Management we’re in our growth phase. We look at our business on a sequential basis quarter-over-quarter. We have been growing on that basis and we continue to grow both first quarter over fourth quarter and quarter-to-date in the second quarter. In our exchange listed business Peter mentioned the very successful GTU transaction which closed in January of this year. Beyond the obvious addition of assets, which is important to our franchise, it has massively improved the trading volume and liquidity and NAV performance of our underlying physical products. What we’ve discovered is the large increase in trading volume actually generates more than that in liquidity for people that are investing in those products.
And because of that the products trade much closer to NAV and we expect that even in a more difficult precious metals environment should that happen, we think our discounts in the future will be smaller even than we managed to do in the past. Beyond that it's brought new clients into our business. We have engaged sales people and added sales people particularly in the U.S. to reach out to those new unitholders they’re delighted with the success for the transaction and the increase in unitholder value for them and their clients. And we’re engaged in discussions about our other products that they can engage with Sprott on.
Now, one of the key debating points during the whole GTU transaction was the relevant merits of the way we manage our products relative to our competitors. One of the arguments from our competitors has been that although they traded at a large discount when the bull market returned they would trade to a premium, what we've all discovered since then is that the bull market has returned and gold has been the best asset class this year. Our products have gone to premiums across the board where our competitors stay languishing at fairly large discounts, and that trust just validates the -- not only the power of our brand, but the power of our people and the management and marketing effort that we put behind these products.
As Peter mentioned not in the first quarter but in the second quarter or this quarter we've already done an issue for our PSO leader Silver Physical product. There was very strong demand for that issue and including taking up a full green shield and our product continues to trade at a premium. When we look at our physical franchise we see substantial opportunities to grow this business globally. We are engaged not just with our core investor base in North America but with new interest both institutionally and beyond coming from Asia and Europe as well.
And finally on the exchange listed business we issued a press release about a week and a half ago announcing that we've launched an aftermarket program for our Gold Phys product under this program if at our discretion we can on a aftermarket basis issue new units into the market a relatively small premiums that are accretive to our existing unitholders. We think that's a really interesting way to continue to grow the business, make it accretive for our unitholders and provide a steadier growth outlook for the business.
On our actively managed products, as I mentioned earlier that business was also up sequentially. We continue to see very strong growth and we really like the balance we have in that business today as most of you know four or five years ago that business would have been almost entirely resource oriented. Today it is a very healthy balance between what we call diversified and resources. Dennis Mitchell, which we effectively launched very late in last year at the end of December it continues to ramp we see very strong engagement in the retail base with Dennis and his franchise and we expect that to continue to grow strongly for us through the remainder of the year and into next year.
Beyond that as Peter mentioned we have been investing heavily in our business bringing in new people to broaden our engagement with clients but also to bring new products to market as we move through the remainder of the year. And finally as you might expect our resource strategies we had four very difficult years on an absolute basis on how to book rate absolute and relative years. The flows associated with those products have not yet returned in any meaningful size in the industry. I think people were initially surprised by the sharp rebound, but we do expect that to grow as we move through the year we are already seeing positive flows in those businesses and it's been a nice addition to our growth this quarter.
We did talk last year about investing in our brand the Sprott Asset Management our focus was on re-educating the marketplace on the types of products that we can bring the value of alternatives and the breadth of the product offering that we now have. We started that effort in the fourth quarter of last year and have continued to maintain it into 2016 and we will maintain it through the remainder of this year and into next year. That frankly has worked faster than we anticipated we are already seeing a meaningful change in the marketplace reception of our products and the kind of engagement we can have with our clients.
And I'll finish finally with our most important asset which is our people, given the engagement and the growth that we have we've aggressively invested in our salesforce both in the retail channel in Canada, but also in the U.S. and institutionally Canada and the U.S. and Europe. We think if you are exchange trust and engagement clients, we have an enormous opportunity given our size and penetration in the marketplace to meaningfully grow regardless of what overall market growth is doing.
We will continue to add people selectively there is a certain caliber first of all there are certain attributes that we are looking for. We need entrepreneurial people, people who want to build businesses and people who think of the world the way we do. And we continue to see a lot of those people approaching us and I think you will see us continue to add headcount as we move through the year.
With that I'll hand it off to Kevin.
Thanks, John and good morning everyone. I will start on Slide 7 with a look at our AUM roll forward. AUM as of the end of the quarter was $8.8 billion which was up $1.4 billion or 18% compared to December 31, 2015 and up $1 billion or 13% from March 31, 2015. The increase in AUM during the quarter was mainly due to the successful closure of the GTU acquisition and market value appreciation across most product lines, which was partially offset by redemptions of our exchange listed products earlier in the year, however as John noted, since the acquisition of GTU Sprott Physical GoldTrust has consistently traded at a premium and we have received no redemption requests since mid-February. Average AUM for the quarter was $8.6 billion, an increase of $1 billion or 13% from March of last year.
Moving on to Slide 8, you will see a breakdown of our Q1 revenues. Management fees net of trailers and sub-advisory fees were $15.2 million reflecting an increase of $600,000 or 4% from this time last year. The increase was largely due to good growth in the average AUM of our exchange listed products, mutual funds and alternative investment strategies driven by a combination of the closure of GTU acquisition earlier in the quarter and rising precious metals prices.
As Peter noted, our proprietary investments performed very well during the quarter, generating $11.5 million in returns compared to a loss of $2.7 million in Q1 of 2015. The gains were due to good market value appreciation in many of our seeded fund investments in the diversified asset business of SAM, as well as strong market appreciation in certain equity holdings of our lending and corporate segments. Interest income, which is largely generated in our lending business, was $4 million during Q1 reflecting a decrease of $2.8 million from the prior period. The decrease was primarily due to lower average loan balances year-over-year coupled with the inclusion in last year’s results of fee income on the early termination of a loan facility.
Commission revenues for the quarter were $1.1 million reflecting a decrease of $1 million from the prior period. The decrease was due to lower commissions in Sprott Private Wealth as a result of the lower year-over-year private placement activity. Other income was negative at $4.3 million reflecting a decrease of $12.9 million from Q1 of last year. The decrease was due almost entirely to foreign exchange losses on certain U.S. dollar cash receivable and loan balances as the Canadian dollar strengthened on a year-over-year basis.
Turning now to Slide 9 for a look at our expenses for the year, total expenses for the quarter were $29.8 million compared with $24.7 million in Q1 of 2015. The increase was primarily due to a non-cash charge taken on an intangible asset in the quarter and to a lesser extent increased SG&A costs which I will describe in greater detail momentarily. Compensation and benefits were $9.2 million reflecting a decrease of 16% from the prior period. The decrease was primarily due to lower discretionary bonus accruals across most of our business segments.
Those lower business accruals were partially offset by higher salaries and benefits as a result of increased headcount in the diversified business of SAM commensurate with the growth initiative investments John mentioned earlier. SG&A expenses were $7.3 million reflecting an increase of 26% from Q1 2015. The increases were primarily the result of increased marketing and fund operating expenses in the diversified business of SAM also consistent with the growth initiatives for that line of business described earlier.
Impairment charges on goodwill and intangibles were $3 million during the quarter and relates entirely to the write off of a legacy management contract. Other expenses were $2.2 million in the quarter and relate largely to operating expenses attributable to seeded energy investments. Loan loss provisions were $200,000 virtually unchanged from this time last year. There were no credit loss events in the quarter to provide for. However, given the IFRS requirement to continue accruing non-cash interest on previously impaired loans by the effective interest rate method of accounting, we are required to accrue such interest and then take a corresponding provision against the accrued interest amount.
Turning now to Slide 10, net income for the quarter was $1.3 million, reflecting a decrease of $5.6 million from Q1 of 2015. Excluding non-cash impairment charges on intangible assets that I described earlier, lower net income was due to foreign exchange losses on translation of U.S. dollar balances, lower commission and interest income, and higher salaries and SG&A in the diversified business of SAM again, commensurate with that line of businesses long-term growth strategy. These lower revenue and higher expense items were only partially offset by higher management fees in SAM both the exchange listed products and diversified products, strong proprietary investment gains and lower discretionary bonus accruals.
Adjusted base EBITDA was $5.2 million for the quarter, reflecting a decrease of $2 million from this time last year. As previously noted, the decrease was mainly due to lower commissions and interest income as well as higher salaries and SG&A. These lower revenue and higher expense items were only partially offset by higher management fees and lower discretionary bonus accruals.
Slide 11 provides a snapshot of our current capital position. We continue to enjoy an extremely strong balance sheet. Investible capital stood at $295 million, reflecting a $10 million decrease from December 31, 2015 with the majority of that decline related to investments made in the GTU acquisition process and the timing of year-end compensation payments.
I’ll now pass it back to Peter for some closing remarks.
Thanks Kevin. On Slide 12, you can see an overview of our loan book, which currently sit at just over 100 million. As Kevin noted we didn’t take any new loan loss provisions beyond the 200,000 which would strictly be offsetting accounting requirement. Larger positions in the book are all healthy and we have no concerns with the credit quality of our book at this time and I think fairly importantly and knock on wood we have an eminent closing that we expect for a lending funds which will start to have outside partner sharing that loan book process and we are really just going to have to be focused on quality new originations, in order to keep the book as robust as it can be.
I had also mentioned that on our private resource businesses which encompass the lending activities as well as some contracts in Asia our private exploration partnerships Sprott Resource Corp. and Toscana most of them or all of them have appeared to have bottomed in late 2015 and are poised to take advantage of still challenging and volatile but more promising resource market conditions. And I would note that the private resource businesses are being reorganized to become more effective at asset management and raising capital as well as more efficient on a cost basis.
Turning to the 2016 outlook, the good news is that we continue to see organic growth opportunities and we continue to invest in those with a view of bolstering our prospects to grow our business and I think the investments that we've made over the past couple of years are starting to pay off. However this is an ongoing process and we do see great opportunities to continue to expand and see ourselves very much as being in growth mode right across our business lines and that's something that will be very important for future profitability. Our precious metal strategies are once again delivering best in class performance and we believe their poised to attract inflows. As John mentioned on the diversified side of the business we have a number of key initiatives underway and our balance sheet remains strong and continues to give us the ability to seed new products and pursue accretive investment opportunities.
We will now open up the call for questions, so I'll pass it back to the operator.
Thank you. [Operator Instructions] Our first question comes from the line of Gary Ho at Desjardins. Your line is now open.
Just the first question on the net redemptions this quarter, I had expected positive cash flows given the positive sentiment around the precious metals. I think you gave some color but just wondering if just -- can you elaborate further and was it driven at all by any Central GoldTrust redemptions there and if so can you please quantify?
Yes, Peter I'll take that it is John Wilson here Gary, so you are right the, you need to look at the redemptions that occur in the exchange listed products in conjunction with the closing of the Central Trust transaction if you remember that was a long run out of there over -- they fought very we think unjustifiably to resist the transaction and at times through that process the gap between the value we were offering because we are offering our physical units as now and their units were through trading up to or as higher than 8%, 9%, 10% discounting out corporate arbitrate player is an opportunity to buy their units very cheaply they would engage with those units and short gold against it. And then when the transactions finally closed and they received these units in exchange they put in for redemption to receive gold to offset their gold short.
So really those net redemptions that you see are just all part and parcel of closing that transaction since that time as Kevin has mentioned earlier we have not had any redemptions, our products are trading above NAV so clearly the opportunity to arbitrate a discount doesn’t exist. If you take that all as one we had positive net sales in the quarter, we had institutional sales and we had retail sales which is obviously as you well know have been a very difficult environment for the general broad industry and that momentum is actually continued into the second quarter. So again we see a lot of opportunity for growth we see strong engagement with their clients and we are going to have more and more products to talk to about.
So if I try to exclude that with the exchange traded products have been in net sales territory?
The exchange traded products no because as I mentioned we did the PSO the issue this quarter so that's more of a second quarter thing as we get the ATM our product’s are operating ramped up on this we would expect the units and assets under management to continue to grow. Both the gains that you see in those units is related to market value. As the price of gold has gone up and has been a year-over-year appreciation in the U.S. dollar.
I am trying to get at the net redemptions 163 for the exchange listed products. Is that mostly…?
That all happened at the early January after we closed the transaction, January 15th.
And then maybe a question for Kevin I want to dig deeper into the expenses, a lot of moving parts. I think on the SG&A line 7.3 million. Is this a good run rate, and can you talk about the higher expense levels and where are you making investments? And the second on the comp line, salary and benefits, 7.4 million. Is that a good run rate to use? And I think in the MD&A you talked about a new LTIP program. Can you give us some color on this as well?
Sure. So I guess first thing sort of consistent with what I’d noted at our last earnings call, where we’re sort of moving away from providing any specific guidance around costs and revenues and things of that sort. But what I can say is yes the SG&A is at somewhat of an elevated level and has been for a while, but that is consistent with the investment strategy that we have in our diversified business, that John had alluded to earlier. Almost all of it is related to that. And for the most part the rest of our segments were either up slightly or pretty much flat on a year-over-year basis.
The spend is in the areas that John touched on, as we continue to roll that in fund, there is going to be some fund OpEx there, marketing and advertising as we continue to reposition the brand that span in the minds of investors and IAs of the sort. As far as whether it's a good run rate, what I can say is we’re going to continue to invest. I can’t give you any specific numbers or timeframe on that. But the number is probably something you want to pay attention to at this level for the next little while.
On the comp side, salaries and benefits that is driven again primarily by the additional headcount in the SAMs base. And with regard to the new LTIP program, it's exactly as you would have seen in our MD&A. This is entirely about trying to identify additional ways that we can increasing align our senior executives’ incentives with objectives that we have for or see coming out of our shareholder base. I am not sure Peter if you have any added color, or John, on this.
Well just related to SAM, I’ll say these that we’ve clearly intentionally invested ahead of revenue from a marketing standpoint I mentioned rebranding that’s a significant material increase a multiple of what we were spending prior to that. And we -- our intent to grow into that number clearly as we grow into that number, and by the way, we have been growing on plan towards what we hope to do in fact that as you are aware actually ahead of where we hope to be. Then we don’t -- if that doesn’t work out then we’re not going to keep spending at that level. But all the evidence today that it's working, the assets are coming in and so we’ll keep spending and growing to that number. Similarly on a headcount basis, obviously when you bring in people and launch products, you have to spend on those people ahead of time and then wait for the products to launch and the assets to come in. So it does have a payback period. We think of these franchises on a three year window in terms of achieving scale. And we have, as I mentioned, a number of those that are in the investment phase now and dragging on the profitability of our business. But it is -- an asset manager’s business is about bringing in assets and then finding the right cost structure on a run rate basis and we’ll definitely get there.
And John exactly this is where I am trying to get at is the earnings power looking at the adjusted EBITDA line it was $5 million this quarter, it's running at a higher expense level to several investments that you mentioned. How is management looking at the adjusted EBIT line? And how should we think about the trajectory here?
Do you want me to take that, Kevin?
Yes, sure absolutely.
I would say that in every respect we’re seeing our EBITDA levels at low points now. As John said there is a lag effect in the asset management side of the business as we invest, we get new assets and those revenues don’t start hitting our income statement until after we’ve made investments. So you’ve got that effect on the resource side. You had a very tough time in the last year on the proprietary investments the seed investments and the lending book. And on the private resource businesses the management businesses while a lot of them saw their assets fall by over a half and are just in rebuilding mode. So we had to take the cost basis down and start to raise more assets, which we’re doing now. So, I think in every respect as John said we have our finger on the trigger of expenses, but right now it looks like the revenues are growing and that we can grow EBITDA from here.
Thank you. And our next question comes from Graham Ryding of TD Securities. Your line is now open.
Maybe just some color around the -- you talked previously about your next generation resource strategies, just wondering if we can get a little bit of an update on the institutional interest around these products if there is any potential launches coming. And then also on your resource loan book the institutional healthy just can you tell us around the potential size and any further details around the on when we can expect that?
Okay, well I should have John comment on the performance of the public resource investments I think it has been pretty excellent. We did higher additional marketing talent around the public resource strategies and the interest I think started to come in late last year, I think there is a lot of people interested now there is a lot of allocation talk and pitches that are happening and we are about to launch a public product in that area, John do you want to make any comments on the public resource team?
So as Peter mentioned earlier we did revamp the way we approach the active management in the precious metal space which has been a sort of legacy area of expertise for the firm we always has very strong technical capability out in the field we have some of the best mining talent on the planet they know virtually every hole in the ground and what's down there and linear the way to leverage that kind of expertise into actual fund performance. Our team we actually made it bigger we more than doubled the size of the team and that seemed like a crazy thing to do a year and half ago when the gold space was in a fair their market and certainly not what our competitors we are doing. They bought in a much more sophisticated portfolio management process and risk management process and really if you look over the last 18 months it's been on the perfect environment to demonstrate the power of what they are doing.
You obviously had another difficult fair market here last year in precious metals and now a very strong rally and through that we've been able to demonstrate not just mass of our performance in terms of capital preservation last year but then when the rally has been able to participate on the upside. And so the blended number of that period is outstanding on a relative basis. And so we have not yet seen, we've started the funds flow who has come back on the retail side that is just the small inkling what we think can continue to happen as if those market stays in the same environment that it is but we have seen strong engagement from institutions and that's just there is a longer process there. There you mentioned the next generation gold fund where we have not announced the public launch of that but in process but that is something we anticipate being available in the second half of the year.
And then lastly you asked about the institutional LP I think it's safe to say that we will start around 200 million and look to double that figure in the few months.
Okay. And do you have any seed money behind that or is that third party money?
We are contributing some of the seed and there is another large anchor investor that would be coming in.
Okay, great. And then just may be a little bit of color on the mutual fund side. This quarter I am interested in sort of the growth of Dennis Mitchell’s funds but also in the quarter where there is some sort of areas of strong inflows and maybe some offset on the mutual fund side?
It is John, Graham. No I would say we had a fairly kind of broad the fund line of balance is much more diverse than it ever was -- one of our folks starting over two years ago as an organization we focused on driving multiple engines of growth and we changed the way we thought about incentivizing not just our PMs but even our sales people in the channel to encourage them to engage with clients on a broader range of our products that's a painful process to grow through and you have one thing selling really well and everyone wants to just sell it, but it was an enormously powerful thing to do so today we have growth drivers across alternative income with our bridging product and will be doing a lot more in alternative income as we move through the year. We continue to have growth in the enhanced franchise Dennis I mentioned the focus franchise, energy is seeing some flows this year Eric Nuttall has done a tremendous job with his energy firm and it is right up with Eric in the financial post today. And the rest of the fund line up has done quite well. Dennis specifically it's -- I launched my funds I guess in second quarter 2012 and it is a painful first year, you get a lot of engagement everyone wants to watch, the watch, you get some early adopters but it's not a linear ramp it's an exponential ramp once they get comfort. Dennis is well known in the channel people love what he does as he is doing an excellent job and the business is growing month-from-month and quarter-over-quarter and so it's just a process so he has been a wonderful partner and a great addition to our investment team and we’re excited about where that business can be a year from now.
And then you just mentioned you’re investing in your salesforce. Any specific detail around the numbers of people you’ve added and then…?
I don’t want to get into number specifically but I’ll give you some examples. We’ve built -- we think over the barrier to entry in our business and the alternatives business it's not the same sort of sale in retail that you would do with the traditional I’ll call things that on mutual fund business, our wholesalers are not just going in and talking about a category and cortiles, they’re explaining a unique product and why it has a need in a portfolio and what that benefits it offers and how to think about it, and use it, and blend it with other things the IA does. So, that is a focus for us over the last number of years, is getting the right kind of people and growing those number of people and we’re still doing that. But beyond that the other investments we’ve made is from the top-down. As a firm we never really engaged with our channel partners at the top in terms of think of the fund analyst and the gatekeepers if you want into the channel. We made a big investment in that area and that’s a focus for us in terms of helping them understand that same value proposition and helping them engage with their IAs and in terms of recommending our products, and showing them where they can be used. So, we think we’ve had literally no engagement at that level. And if you look at fund companies that have done well both here in the United States, that’s an important part of the process. So, that’s an investment. It doesn’t pay off right away. But we think it's not just important but crucial if we’re going to grow the business the way we want to grow the business.
Beyond that we’ve added sales people on the ground. And we’ve opened a New York office. We’ve people engaging for the first time, where most people forget about our franchise as we have a significant assets helped by U.S. unitholders, multiple billions of dollars of assets held down there and we just felt that it was important to engage directly with the IAs in that geography. We feel like we have an opportunity not just to help them use more actively the products they already are using but to educate them on other products that we can offer them and broaden our engagement with that client base. So that’s an important initiative for us. And finally institutionally we are finally with all the new products we’ve been building over the last number of years, we have track records with three years plus that we can engage with institutional clients on. We have, as Peter mentioned, full reemerging with interest in the precious metal space globally. And so we just needed more horsepower to address a lot of the interest that we have. So that’s a longer sales cycle. But as you know it's a very chunky sales cycle and so we just needed to be bigger there.
Thank you. And our next question comes from Geoff Kwan of RBC. Your line is now open.
Just had one question and you’ve talked about over the years trying to diversify the business away from being as highly exposed to kind of the precious metals and resources sector. Just wondering if you’ve got an updated breakout on the AUM exposure to each of those buckets in terms of precious metals, resources ex-energy and then also within the energy category?
So the diversity if you look at the Sprott Asset Management line up which is we’re at least right now in the current quarter we’re above $8 billion in assets, so roughly half of that being exchange listed products and half that being actively managed products. Within the actively managed portfolio, you’re around 75%-80% non-resource if you want to think of it that way, that changes month to month, the resource strategies and we have reserve strategies of about 60% year-to-date. So as much as that percentage wise they are higher in terms of non-resource at the start of the year, it's only dropped because those resource strategies are doing so well this year. And we don’t have a specific target. I don’t ever want people to think that we’ve deemphasized resource investing or -- in fact as I mentioned earlier we doubled down and trying to do a better job there. We just felt the business is not only capable of steadier growth but as much as risky business if we have multiple businesses that can do well at any point in time. And last year was a great example where our non-resource actively managed funds grew alive and did well while resources struggled and we grew that business year-over-year and sequentially through the year. And this year where if you look broadly in the North American fund landscape it's been a very difficult start to the year from those diversified oriented funds, our resources strategies are really killing it. And again we’re growing. So, we just like the balance between active and passive that we have today and between resource and non-resource. And we see, we literally have got drivers across all of those businesses.
Thank you. Our next question comes from Aram Fuchs of Fertilemind Capital. Your line is now open.
It's Aram Fuchs, Fertilemind Capital. Just regarding the long-term compensation scheme and specifically around this option grant on March 31st. Is this something you haven’t given options to senior management in a while. Is this something that we should consider one-off? Or should we start extrapolating these on an annual basis? Yes?
Well from a numbers perspective no you should not be extrapolating as we note in the MD&A and you will see it in our information circular as well. There is a combination of time and performance based options. The number that you are seeing in our result this quarter is a component of the time based option that immediately invested in the contract signing in the quarter so that number is somewhat skewing the quarter results you definitely shouldn’t be extrapolating that across multiple quarters and as far as one off it was a transition right now that we implemented, so in terms of seeing a material amount of LTIP being added into the cost structure going forward that's not something that we would be doing.
Okay. And then if there is a business purpose that you decided to do this in one gulp of dilution or maybe you can Peter if you can just give us the details on the timing and if there is anything we can read into it?
Yes, sure. Well it was an alignment move and it was largely one-time and it was related to the sort of coming of age of our compensation plan so I drop my salary by half in order to participate in options program. John was granted options because he wasn’t being paid otherwise to head the asset management business so that's really I think a very fair and aligned package for an executive running our largest division. And then James Fox is the President of our Asset Management division as well it is an alignment move for him a onetime move and he has been with us for I think over 12 years. Key executives and I think that this just a very strong onetime move by the comp committee to say we want all these execs to be very motivating by the share price.
Okay. And you dropped your salary by half is that what you are...?
Okay, thanks. That's obviously helpful. And then John maybe you can talk a little bit more about buzz it seems that some other funds ventures have try to make sense of the Twitter hose and message board chatter just wondering it seems like a big jump from your natural resources reputation. Why did you go there as the first lead into this world?
Well. First of all we thought it this way if you are going to continue to expand in the exchange listed business you need to have one or two things going for you which is either a; an obvious leadership position and whatever product category you are offering and so clearly in the precious metal space that's why we were able to do the SCDM so successfully people knew Sprott and we were in association with the asset class and engaged with us almost immediately on the launch of that product and then the SGJVJ the junior product. But as we've been talking about for a number of years now the opportunity for us is to expand beyond that core base so we've done it successfully in the Canadian marketplace and we want to continue to do that in the U.S. marketplace so eventually we were going to you are going to see us increasingly in the U.S. market with products that are not related to precious metals and as much as we will continue to promote our precious metals products in that marketplace.
And so as you are going to go into new area in that category better go into one that an established leadership and a place that other people haven’t done it yet and this is a really interesting new area. We for a launch to your point from us that it seemed a little outside what you might have expected from us you would not believe the coverage we got that, we were CNBC that morning the Bloomberg TV and in virtually written up in the Wall Street journal and it's been that very broad coverage people are very interested in that and actually spending an incredibly successful launch because the engagement people have -- they want to hear about it they won't understand it and so you do these things you manage your cost base, you keep your fix your breakeven points relatively low but we thought that was an interesting way that if it was successful it could really lead to some interesting product for us and really broaden the breadth of what people thought we were capable of in the U.S. so far we are extremely happy with the reception to the product now we have to continue to grow it and actually get we people engaging in a more creations but it's the half way is very good so far.
Okay, great thanks. And then Peter you mentioned that you are going to get that anchor investment on the debt side would that imply that you will be getting some of your seed investment up stream to FII and if so I know i am probably sounding like the annoying broken record what do you do with that capital, do you buy back shares or is there -- it does get moved into another seed fund, what are your thoughts about that?
So I break it down into two separate areas. First, the way it works on the lending book will be roughly a rolling over of our existing loan book into the new LP. So, this shouldn’t be that -- if we manage it properly and things go as we hope they will, there shouldn’t be much of a drop of EBITDA from the lending book earnings and we should have roughly the same amount of capital committed to the business at all times. And so there won’t be a noticeable effect from that perspective, we’ll just have management fees and carry beside it, from the perspective of buybacks or what we’re doing with our extra capital, because we do have excess capital and balance sheet strength. There has been no decision on that. As you know the share price dipped to a level where it was getting to be extremely attractive. It's come up since due to better performance. We do have excess capital. We do pay a very strong dividend. We always look at whether we should be paying dividend or buying back, or both. And that’s just the constant debate with the Board as it should be. And we will continue to look at the optimal way to return capital to shareholders.
Thank you. Our next question comes from Scott Chan of Canaccord Genuity. Your line is now open.
I just have one question for Kevin just on the AUM roll forward slide. On managed accounts, it looks like net sales were 25 million to almost in the beginning AUM can you disclose what that indicated?
I’ll have to get back to you on that one.
Thank you. And this time, I am showing there are no further participants in the queue. I would like to hand the call back to management for any closing remarks.
Well, as usual, thank you everybody for your interest. And we look forward to talking to you again soon. Have a good weekend.
Ladies and gentlemen, thank you for your participation on today’s conference. This concludes your program. You may now disconnect. Everyone have a great day.
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