Crescat Capital discusses their outperformance due to precious metals long positions and announce their new fund, Crescat Precious Metals Master Fund LTD.
Thanks to our precious metals long positions, Crescat’s Global Macro and Long/Short hedge funds made it into two of the top three slots of the Bloomberg US hedge fund performance table for June:
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Strong Returns For Crescat's Global Macro and Long/Short Hedge Funds
The strong returns in both funds were driven by the firm’s global fiat debasement macro theme. This is just one of the three highest conviction themes that comprise what we at Crescat consider to be the macro trade of the century. We maintain extensive global precious metals mining long exposure throughout the firm today, including in our two existing hedge funds.
A key driver of our strong recent returns has been our activist positions in the beaten-down global gold exploration segment of the market that offers tremendous value and growth potential today after a decade long bear market.
In addition to the precious metals long exposure, Crescat’s two hedge funds maintain substantial gross short exposure today to over-valued US stocks at large, our second high conviction theme. As we were able to accomplish in March in both of these funds, we aim to further capitalize on the historically over-valued stock market, structural recession, and likely soon to be reignited bear market.
On top of those two themes, our global macro fund also has substantial Chinese yuan and Hong Kong dollar short exposure through long USD call options based on our third high conviction macro trade, the impending Chinese currency and credit bust. We believe these and other currency positions in the global macro fund offer a strong complement to our long gold exposure. All three legs of the macro trade of the century, in our view, are only just beginning to unfold.
There are different ways to participate in Crescat’s macro views. For those who want to participate in all three of our highest conviction themes today, and all our themes in general, we have the global macro fund. For those with any apprehension regarding our Chinese currency exposure, there is the long/short fund which is focused more exclusively on the equity-oriented ways to play our macro themes. For those who are uneasy about shorting anything at all, we have our long-oriented large cap and precious metals separately managed account (SMA) strategies. These strategies did extremely well last quarter as gold and silver stocks had their best quarterly performance in history. Such returns, we believe are indicative that we are in the early stages of new precious metals bull market, one that has started off with a bang.
Our final returns for all four of Crescat’s existing strategies through June are shown below:
Crescat Precious Metals Master Fund LTD
Given the exciting and timely opportunity, Crescat is announcing the launch of our third, new private fund, the Crescat Precious Metals Master Fund LTD. Like our other two funds, the new fund will be exclusively be available to accredited investors and qualified clients.
The strategy for the new fund will be similar to that of the precious metals SMA in that it will be focused on a diversified long portfolio of precious metals securities. The advantage of the new fund versus the SMA is that it will be able to participate, like our existing private funds, in a more advantageous way in Crescat’s activist campaigns in the precious metals mining industry.
Specifically, inside the funds, we are able to get access to private placements in public securities in our activist targeted companies, often at significant discounts to market prices and with warrants that offer additional value and upside exposure. We have been hard at work vetting companies and negotiating such positions already, but these securities comprise a smaller relative component of our existing funds. It is important to note that our precious metals SMA strategy will continue to own most of the same activist mining companies as our private funds and will remain available to non-accredited investors, but only our private funds will be able to participate in the private placements.
We believe there will be increasingly high demand for precious metals and the most dynamic mining companies in the industry because such securities provide strong appreciation potential in periods of negative and declining real interest rates, including both recessionary and ultimately inflationary environments. Furthermore, demand for gold and silver tends to be strong in economies like today when the total debt is historically high relative to GDP and central banks are engaged in easy monetary policies. Such policies include interest rate suppression, yield curve control, quantitative easing, debt monetization, fiat money printing, and other central bank attempts to ease debt burdens and boost the overall economy. Today, more than ever, we believe that ongoing easy monetary policies in the face of asset bubbles in stocks and fixed income securities will lead to a self-reinforcing cycle that drives forward-thinking investors out of these over-valued asset classes and into under-valued precious metals.
In the new Crescat precious metals fund, we will take an activist approach to a substantial portion of companies to which we allocate capital. Our goal at this stage of the precious metals cycle is to invest in a portfolio of the largest and most economic new gold and silver deposits on the planet. Our activism means that whenever possible, we seek to:
- Acquire a meaningful stake. We want to be a valued long-term shareholder partner with a significant stake, typically at least 2% and up to 19.9% of the shares outstanding of the companies within the activist section of our portfolio.
- Infuse growth capital. We want to get exploration and development capital directly to our companies with the largest and most economic prospects. We want to help these companies flesh out their valuable deposits of gold and silver in the ground and turn these assets into highly profitable mines with strong discounted free cash flow and net present value economics. We will often accomplish this through negotiated private placement investments in public companies that can come with activist perks including discounts, warrants, and anti-dilution rights.
- Bring in experts. We can introduce potential new management, board members, and technical experts through our network of talent. The fund has a strong relationship with Quinton Hennigh, PhD, and his association with proven industry leaders. Quinton is a world-renowned exploration geologist with 30+ years of industry experience who serves as Crescat’s lead independent technical and geologic advisor.
- Work with management and board. We generally operate as friendly activists in a collaborative way with existing stakeholders to further our joint interests.
- Tell the story. There is an exciting narrative behind the geology and economic opportunity in each of the companies in our portfolio. Our goal is to share this story with the broader investment community to unlock the hidden value we have discovered.
We are accepting subscriptions to the new precious metals fund now for an end of July start. Please contact Marek Iwahashi if you would like to receive information including offering and subscription docs and/or would like to set up a call to discuss.
Crescat Capital LLC
Kevin C. Smith, CFA
Founder & Chief Investment Officer
Partner & Portfolio Manager