Sprott Inc. saw its second quarter net income fall to half of what it earned in the same period last year as lower assets under management drove down the firm’s revenue.

For the quarter ended June 30, Sprott earned a profit of $5.6 million, down sharply from $11.4 million in Q2 2008.

Total revenue for Q2 plunged by 41.5% to $23.1 million from $39.5 million in Q2 2008. This included a 40.8% drop in management fees to $21.7 million, as monthly average AUM decreased by approximately 36.7% over the same period.

AUM were $4.4 billion as of June 30 compared with $7.7 billion a year earlier and $4.7 billion on March 31. The $300-million decrease from the end of the first quarter reflected market value declines of $200 million, plus net redemptions of $40 million, the company said.

In a conference call on Thursday, Sprott Inc. chief financial officer Steve Rostowsky said net redemptions have been declining in recent months.

“The trend is certainly improving,” he said. “We do have positive sales in a number of our funds.”

Gains from proprietary investments totalled $800,000 in Q2 compared with a loss of $2.8 million in the second quarter of last year. These gains were primarily a result of market appreciation, the company said.

Total expenses for the three-month period were $15.3 million, down $7.4 million, or 32.6%, from the same period last year. The decrease was mainly attributable to lower compensation and benefits, and a $3.1 million decline in trailer fees.

Some of Sprott’s funds benefited from the market appreciation in Q2, including the Sprott Small Cap Hedge Fund and the Sprott Gold and Precious Minerals Fund, the company said.

“A number of our funds have done extremely well,” said Eric Sprott, president and CEO of Sprott Inc., speaking in Thursday’s conference call.

Sprott said he remains bullish on small-cap stocks and precious metals. “We still believe there’s some tremendous opportunities on the long side in this market,” he said, adding that gold remains particularly attractive. “All the fundamentals for gold are good.”

Other funds, including some of the company’s hedge funds with short positions, were hurt by the upswing in stock prices during the second quarter.

“The hedge funds have not fared well this quarter due to the massive rally in the market,” said Sprott.

Commenting on the current state of the economy, Sprott said he does not believe a sustainable recovery is underway. He said government stimulus efforts are having very little impact on the economy and he warned that quantitative easing activities in the U.S. and Europe are likely to cause problems.

“The supposed solution to the problem, which is printing money, is not a formula for sustainability. It will create all sorts of problems,” he said.

Sprott said the company is seeking opportunities to expand. In particular, Sprott Inc. hopes to add a fixed-income component to its offerings and it is exploring new products in its line of gold investment vehicles.