Crescat Capital

Crescat Capital – Profitable Precious Metals, China Rally Unsustainable

Crescat Capital commentary for the month ended January 31, 2017.

2016 Hedge Fund Letters

Global Fiat Debasement was our best performing macro theme for the month across all three Crescat products followed by Rise of the Machines and Security & Defense. Peak Deflation, our short global sovereign debt theme, also generated gains in our global macro fund. Our equity long positions in precious metals, cyber security and defense, artificial intelligence, infrastructure, financials, and health care produced gains across all products in January. Our commodity longs in precious metals also generated gains in our global macro fund. Below are January net performance estimates through 01/31/17:

Crescat Global Macro

-0.4%

Crescat Long/Short

+0.7%

Crescat Large Cap

+2.3%

S&P 500

+1.9%

Crescat Capital

Crescat Capital

China yuan and Japanese yen currency shorts worked against us for the month in our global macro fund while China and emerging market equity shorts worked against us in both hedge funds. Thus, our hedge funds underperformed our Large Cap strategy in January. We think the recent rally in Chinese currency and equity markets is temporary and unsustainable. We expect the Trump administration to step up its trade negotiating tactics with China now that the Chinese are returning from a week-long vacation. Trump and his administration are an important catalyst for our China Currency and Credit Bubble theme to play out in favor of our short positioning there.

Our hedge funds are hedged. Therefore, we may take short positions as hedges versus our long positions to manage and reduce overall market risk. Overall since inception, our short positions have helped us maintain a high alpha and low correlation to the market and other managers in our hedge funds. Frequently, we have done very well with our shorts regardless of the market direction.

We have done extremely well for our clients over the long term in all of our strategies. We strive to be defensive in our large-cap, long-only product when we see increased market risks on the horizon. However, our hedge funds have a broader mandate than Large Cap, which gives us more tools to position for inevitable market turmoil. Global Macro is the product with the broadest mandate. Therein, we combine long and short positions among equities, commodities, currencies, and fixed income securities, whereas the Long/Short is a fund focused primarily on equities. We apply our macro themes, fundamental equity model, and risk models across all three products.

Please be sure to add bmckelvey@crescat.net to your address book to ensure delivery of all investor communication. Additionally, updated performance reports will be available in the next few weeks. Thank you for your continued support and commitment to Crescat.

Sincerely,

Crescat Capital

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