Asset manager Sprott Inc. today reported a third-quarter profit of $3.7 million, up from $3.5 million a year earlier, despite the declines in financial markets.

Assets under management stood at $5.6 billion on Sept. 30, down from $7.7 billion on June 30 but up from $5.5 billion at the end of last year’s third quarter.

Management fees increased 19% from a year earlier to $32.9 million. Total revenue — management fees, performance fees, gains or losses on proprietary investments and interest income — increased by 18% to $25.4 million from $21.6 million.

Net fund sales for the quarter were $122 million, but the market slide cut the value of assets under management by $2.2 billion.

“While we anticipated a market downturn in 2008 and positioned our portfolios defensively, we did not expect investors to punish real, hard assets, in particular gold and gold stocks,” said Eric Sprott, CEO, in a release.

In a conference call on Thursday, he said he is still confident gold prices will improve going forward.

“Physical gold demand has been absolutely immense,” Sprott said. “We will ultimately win that game.”

He noted that Sprott’s hedge funds have performed reasonably well in the past year given the market circumstances, with most roughly at the break-even point for the year to date. They have performed particularly well in the past month, all showing increases for the month of October, he said.

“The real value of a hedge fund has shown its merits in this month,” Sprott said.

Given the impact of the financial crisis on global hedge funds, however, the company has increased liquidity to deal with possible redemptions. Redemptions in Canada have so far been modest, but Sprott said he expects an increasing number of redemptions in offshore hedge funds this quarter.

Still, he said he feels “reasonably good” about the company’s performance going forward.

“We remain confident that our investment strategies will deliver strong growth over the long term and support our efforts to increase our market share of the Canadian and global asset management industries,” he said.

IE