David Franklin, newly appointed president of Toronto-based Sprott Private Wealth LP, has a keen nose for ferreting out investment opportunities — a skill that will be handy in his role of finding profitable investment ideas for Sprott’s clients.

It was Franklin’s hunting instinct that helped forge a bond several years ago with Eric Sprott, founder of Sprott Inc. , the parent company of SPW. Franklin was then an institutional broker at a small firm in Toronto and had uncovered a transaction that he calls “a wild success story.”

Through a geologist, Franklin had heard about a phosphate deposit in Peru. With the help of contacts at Sprott Resource Corp., the rights to the property were purchased for $50,000, and a company called Stonegate Agricom Ltd. was formed to develop the property. Stonegate eventually soared to a market cap of $230 million.

“I enjoyed being able to pursue my own ideas and pick my own stocks,” says Franklin, 40. “When you call up a guy like Eric Sprott, you need to tell him something he doesn’t already know.”

Having earned Eric Sprott’s respect, in 2008 Franklin joined Sprott Inc. as an analyst, supporting the company’s fund portfolio managers in their research. A year later, Franklin started co-writing Eric Sprott’s opinionated and widely read monthly newsletter, Markets At a Glance with Eric Sprott. Last year, Franklin was promoted to market strategist.

Franklin takes over from Eric Sprott as head of SPW, which has about $3 billion in assets under management — a big chunk of Sprott Inc.’s total AUM of $8.5 billion. Franklin’s mandate is “to grow the business, and that growth could take many forms.”

SPW is looking to open new offices across Canada, in cities such as Ottawa, where Eric Sprott is already well known due to his support of Carleton University’s Sprott School of Business and the Sprott Centre for Stem Cell Research at Ottawa Hospital. Vancouver and Calgary are also candidates for expansion, says Franklin, “given our resource bent.” The firm also plans to add ancillary services such as estate planning, asset allocation and tax planning.

Global expansion also is on the agenda. SPW recently made its first foray into the U.S. with the purchase of San Francisco-based Global Resource Investments Inc. This acquisition brings the expertise of Global Resource president and high-profile junior resources expert Rick Rule, and will expand the products available to SPW clients, including access to Global Resource’s closed-end junior resources funds.

SPW’s clients, which include high net-worth individuals, foundations and trusts, must have at least $1 million in investible assets, and these may be invested in Sprott funds as well as in individual stocks and bonds. SPW is a registered member of the Investment Industry Regulatory Organization of Canada, giving the company the flexibility to raise capital by selling securities. SPW’s clients, therefore, have opportunities to invest in many early-stage financings and private placements.@page_break@“Clients have access to a full range of portfolio solutions, including Sprott funds, individual deals, fixed-income and hedging strategies,” says Franklin. “What all of these solutions have in common is that they are guided by Sprott thought leadership.”

SPW stands out as a company willing to make aggressive bets on big-picture investment themes. Its investing style is to start with small stakes in a lot of small companies, then invest more in the same sector if theories unfold as expected.

BETTING ON HARD ASSETS

“We tend to have highly concentrated portfolios, ” Franklin says, “based on our world view or macro perspective.”

Currently, SPW’s “world view” is that many governments, including that of the U.S., are broke and the financial system is fragile. Governments are papering over the problems by printing more money, thus debasing their currencies. “Investors should be turning to hard assets,” Franklin says, “such as metals, energy and agriculture, to protect purchasing power.”

When the world view changes, so will SPW’s portfolios, Franklin says. SPW also takes short positions, and the firm’s clients have profited by being short on banks and companies tied to the U.S. housing industry during the 2008 financial crisis.

In 2010, SPW participated in 242 financings. Currently, most of these companies are in the resources sector, in which SPW discerns opportunity. “We have the busiest lobby in Toronto,” Franklin says. “We did 242 transactions [last year], but we probably saw 10 times that in terms of the number of companies.”

SPW is particularly bullish on silver, and last autumn introduced Sprott Physical Silver Trust to capitalize on the trend. The closed-end trust, which holds silver bullion, recently traded at around $19 a unit, up significantly from its issue price of $10 but down from its peak of $23. SPW also has introduced publicly traded entities such as the Sprott Physical Gold Trust, Sprott Power Corp. and Sprott Resource Lending Corp., and will continue to develop investment vehicles as opportunities arise. “Our clients have fantastic access to resources opportunities,” Franklin says. “Most are listed in Canada, but they have properties all over the world.”

Franklin says SPW uses a “buy-side lens” to investigate opportunities. So, while SPW analysts examine thousands of companies, SPW is fussy about which ones it takes a stake in. If enough stock is available, SPW may also offer some to private clients. Says Franklin: “We are different from many brokerages out there that are seeking to build their underwriting business [by] indiscriminately pushing the product out to clients.”

Franklin says there is great potential in precious metals mining companies that are dormant or bankrupt due to their inability to make a profit when bullion prices were lower. With prices soaring to higher levels, it now makes sense to refinance many of these firms and bring them back to life.

Franklin often tries to incorporate family time into his business trips. He recently took his wife Shelley and their two boys, ages seven and 10, on an expedition to Newfoundland, and Franklin is hoping his family will accompany him to a Mongolian mining conference this autumn. At home, he and his family enjoy their backyard pool and “smoker” barbecue. IE