- Kevin Smith, founder and chief investment officer of Crescat Capital, a small Denver-based hedge fund firm, has taken positions shorting Chinese equities and currency due to concerns about China's slowing economy, deteriorating corporate earnings, and credit bubble. - Crescat has also benefited from short positions in oil, energy companies, and biotech, as well as long positions in digital media companies and those that will profit from the FCC's upcoming broadcast spectrum auction. - Through August, Crescat's flagship Global Macro fund has achieved returns of 6.5% for the month and 12.8% year-to-date, outperforming the S&P 500.

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%www.barrons.comTHE DOW JONES BUSINESS AND FINANCIAL WEEKLY AUGUST 31, 2015
DonCudneyforBarron’s
In late June, with valuations still sky-high
on China’s Shanghai and Shenzhen stock ex-
changes, even after the bubbles had started to
burst, with corporate earnings deteriorating
despite government stimulus, and consumer
spending soft, Kevin Smith switched gears and
shorted Chinese equities.
Crescat Capital, his investment firm, remains
short three Chinese equity exchange-traded
funds: iShares MSCI China (ticker: MCHI), iS-
hares China Large-Cap (FXI), and Guggenheim
China Small-Cap (HAO), plus six U.S.-listed
Chinese stocks. He and his team already were
shorting China’s currency, the yuan, by struc-
turing custom put options with Bank of America,
because of worries about capital outflows and the
country’s massive credit bubble. They’d already
benefited from a slowdown in China’s economy
by shorting metal and mining stocks in Australia,
New Zealand, and Brazil, and now they’ve begun
shorting Australian banks.
“One of the catalysts for increasing our equity
short positions in China was that Bridgewater
Associates, the largest macro hedge fund in the
world, turned 180 degrees on their position on
China and had to be getting out of their posi-
tions,” says Smith. “There’s a general realiza-
tion that this great growth juggernaut of emerg-
ing-market countries for the past decade or
more is slowing, if not going into a hard landing.”
It was the latest savvy move by Smith,
founder and chief investment officer of a small,
little-known Denver firm that caters to family
hina “is slowing, if
ot going into a hard
nding,” says Smith,
hose small fund has
apped up digital
mes in the U.S.
Talking With
Kevin Smith
Founder and Chief Investment Officer
Crescat Capital
Short China,
Long Apple
by Sandra Ward
IN LATE JUNE, WITH VALUATIONS STILL SKY-HIGH ON
China’s Shanghai and Shenzhen stock exchanges, even
after the bubbles had started to burst, with corporate
earnings deteriorating despite government stimulus, and
consumer spending soft, Kevin Smith switched gears and
shorted Chinese equities.
Crescat Capital, his investment firm, remains short
three Chinese equity exchange-traded funds: iShares
MSCI China (ticker: MCHI), iShares China Large-Cap
(FXI), and Guggenheim China Small-Cap (HAO), plus
six U.S.-listed Chinese stocks. He and his team already
were shorting China’s currency, the yuan, by structuring
custom put options with Bank of America, because of
worries about capital outflows and the country’s massive
credit bubble. They’d already benefited from a slowdown
in China’s economy by shorting metal and mining stocks
in Australia, New Zealand, and Brazil, and now they’ve
begun shorting Australian banks.
“One of the catalysts for increasing our equity short
positions in China was that Bridgewater Associates,
the largest macro hedge fund in the world, turned 180
degrees on their position on China and had to be
getting out of their positions,” says Smith. “There’s a
general realization that this great growth juggernaut
of emerging-market countries for the past decade or
more is slowing, if not going into a hard landing.”
It was the latest savvy move by Smith, founder and
chief investment officer of a small, little-known Denver
firm that caters to family offices and wealthy individuals
Investors in its three hedge funds, including its flagship
Crescat Global Macro fund, also have benefited from
timely bets against oil futures, energy companies, master
limited partnerships, and biotechnology stocks, as well
as long positions in Indian equities, among others.
Through Aug. 26, Global Macro had produced net re-
turns of 6.5% this month and continued on page 25
China “is slowing, if
not going into a hard
landing,” says Smith,
whose small fund has
snapped up digital
names in the U.S.
Talking With
Kevin Smith
Founder and Chief Investment Officer
Crescat Capital
Short China
Long Apple
by Sandra Ward
IN LATE JUNE, WITH VALUATIONS STILL SKY-HIG
China’s Shanghai and Shenzhen stock exchanges
after the bubbles had started to burst, with corp
earnings deteriorating despite government stimulu
consumer spending soft, Kevin Smith switched gea
shorted Chinese equities.
Crescat Capital, his investment firm, remains
three Chinese equity exchange-traded funds: iS
MSCI China (ticker: MCHI), iShares China Larg
(FXI), and Guggenheim China Small-Cap (HAO
six U.S.-listed Chinese stocks. He and his team al
were shorting China’s currency, the yuan, by struc
custom put options with Bank of America, beca
worries about capital outflows and the country’s m
credit bubble. They’d already benefited from a slow
in China’s economy by shorting metal and mining
in Australia, New Zealand, and Brazil, and now th
begun shorting Australian banks.
“One of the catalysts for increasing our equity
positions in China was that Bridgewater Assoc
the largest macro hedge fund in the world, turne
degrees on their position on China and had
getting out of their positions,” says Smith. “The
general realization that this great growth jugge
of emerging-market countries for the past deca
more is slowing, if not going into a hard landin
It was the latest savvy move by Smith, founde
chief investment officer of a small, little-known D
firm that caters to family offices and wealthy indiv
Investors in its three hedge funds, including its fla
Crescat Global Macro fund, also have benefited
timely bets against oil futures, energy companies, m
limited partnerships, and biotechnology stocks, a
as long positions in Indian equities, among other
Through Aug. 26, Global Macro had produced n
turns of 6.5% this month and continued on pa

2. offices and wealthy individuals. Investors
in its three hedge funds, including its flag-
ship Crescat Global Macro fund, also have
benefited from timely bets against oil fu-
tures, energy companies, master limited
partnerships, and biotechnology stocks, as
well as long positions in Indian equities,
among others.
Through Aug. 26, Global Macro had pro-
duced net returns of 6.5% this month and
12.8% this year. In the same stretches, the
Standard & Poor’s 500 lost 11.1% and 8.1%,
respectively. And in 2014, Global Macro
ranked sixth among all hedge funds that
pursue a macro strategy, delivering a net
return of 25.83%, reports Preqin, a fund
researcher.
Yet, with $49.5 million in assets, the
fund remains tiny, since many institutions
require a minimum $100 million under
management before considering an invest-
ment. If Smith continues to deliver, that
could change.
More mild-mannered than swashbuck-
ling, the Stanford University grad -- by
way of the University of Colorado -- be-
gan his career as an auditor for accounting
firm Arthur Young (now known as Ernst &
Young), but soon realized he had a passion
for investing, rather than for examining
other people’s work. An economics major
in his undergraduate days, Smith went on
to earn an advanced degree in finance from
the University of Chicago’s Booth School of
Business. The university’s motto, “Crescat
scientia; vita excolatur,” or “Let knowledge
grow from more to more; and so be human
life enriched,” inspired his firm’s name.
In 1992, after finishing business school,
Smith landed a job as a stockbroker at
Kidder Peabody in Los Angeles, special-
izing in working with high-net-worth indi-
viduals. He later moved to PaineWebber’s
Denver office after that company bought
Kidder. (PaineWebber later was subsumed
into UBS.)
“I really wanted to build my own busi-
ness and, as a broker, I learned to do that
and learned about sales, as well as being
a money manager,” recalls Smith. “I very
quickly learned that I was more interested
in being a money manager than I was in
being a salesperson and making cold calls.”
While “moderately” successful as a
broker, with a loyal clientele, he loved re-
searching equities and buying and selling
individual stocks, and eventually he devel-
oped a discounted free-cash-flow model that
he continues to use today. It screens 2,000
of the most liquid global equities, including
American depositary receipts, traded on
U.S. exchanges. It measures liquidity by
the dollar volume of trading in the past six
months. The stocks are then rated on 75
fundamental criteria on a daily basis and
ranked again, based on six factors: value,
growth, quality, dynamics of free cash flow
and sales and earnings, capital allocation,
and balance-sheet strength. Stocks are
scored from zero to 100: Those rated 20
and below are candidates for shorting, and
those reaching 90 and higher are candi-
dates for buying. He and his team then
apply top-down macroeconomic analysis to
determine the portfolio’s profile.
After leaving PaineWebber in the late
1990s to establish an asset-management
unit at a boutique broker-dealer, Smith
ventured out on his own, launching Cres-
cat in 2005.
Despite last week’s market jitters, all
is not doom and gloom, according to the
51-year-old Smith. In fact, he and his team
took advantage of the selloff to add to po-
sitions in Apple (AAPL), Google (GOOGL),
Facebook (FB), CBS (CBS), Comcast
(CMCSA), and Nvidia (NVDA), all ben-
eficiaries of the digital evolution that is
among Crescat’s top investment themes.
Indeed, one of Crescat’s more exciting
bullish plays is based on the planned sale of
broadcast spectrum that the Federal Com-
munications Commission will be conduct-
ing early next year. The sale to wireless
carriers is expected to result in a bonanza
-- potentially $40 billion to $80 billion in
cash -- for the TV broadcasters that par-
ticipate.
“The ones we like have a high percent-
age of TV stations, relative to their mar-
ket cap,” says Smith. They include Sinclair
Broadcast Group (SBGI), Tribune Media
(TRCO),E.W. Scripps (SSP), Nexstar
Broadcasting Group (NXST), CBS (CBS),
Media General (MEG), and Tegna (TGNA),
formerly part of Gannett. “Sinclair and
Nexstar come to the top of the list for their
really good operating businesses, but all of
these companies have very good free-cash-
flow yields and valuations, so the way to
play this is with a basket.”
Another theme, the “aging population,”
encompasses managed-care companies that
service Medicaid patients, such as Molina
Healthcare (MOH) and Centene (CNC),
both of which are generating strong free
cash flow and have earnings power masked
by over-reserving.
One Crescat bet that soured in the sell-
off but has rebounded is shorting 10- and
30-year Treasuries on the expectation that
the Fed will take the first step to raise in-
terest rates. “A lot of people are concerned
about deflation, but we think Treasury
bonds are overvalued,” says Smith. “We
were right the first half of the year, but
wrong the past few months or so.”
Time will tell, but Crescat’s contrary
ways tend to pay off.
Smith’s Picks
Company /Ticker RecentPrice
SinclairBroadcastGroup/SBGI $25.81
NexstarBroadcastingGroup /NXST 45.41
Centene/CNC 63.23
MolinaHealthcare/MOH 76.07
...ANDPANS RecentPrice
iSharesAustraliaETF /EWA $19.25
WestpacBanking/WBK 22.98
Source:Bloomberg
Only accredited investors and qualified clients will be admitted as limited partners to a Crescat fund. For natural persons, investors must meet SEC requirements
including minimum annual income or net worth thresholds. Crescat funds are being offered in reliance on an exemption from the registration requirements of the
Securities Act of 1933 and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The SEC has not passed
upon the merits of or given its approval to the Crescat funds, the terms of the offering, or the accuracy or completeness of any offering materials. A registration
statement has not been filed for any Crescat fund with the SEC. Limited partner interests in the Crescat funds are subject to legal restrictions on transfer and resale.
Investors should not assume they will be able to resell their securities. Investing in securities involves risk. Investors should be able to bear the loss of their investment.
Investments in the Crescat funds are not subject to the protections of the Investment Company Act of 1940. Performance data represents past performance, and past
performance does not guarantee future results. Performance data is subject to revision following each monthly reconciliation and annual audit. Current performance
may be lower or higher than the performance data presented. Crescat is not required by law to follow any standard methodology when calculating and representing
performance data. The performance of Crescat funds may not be directly comparable to the performance of other private or registered funds. Investors may obtain
the most current performance data and private offering memorandum for a Crescat fund by contacting Linda Smith at (303) 271-9997 or by sending a request via email
to lsmith@crescat.net. See the private offering memorandum for each Crescat fund for complete information and risk factors.