Investment Process Overview

A robust, well-executed process is crucial to top-level performance. Crescat uses a refined stock-picking model, diversified macro themes, and prudent risk management to achieve our strong investment returns.

Macro-thematic Allocation

Getting big-picture macro themes right is key to protecting and growing capital. Crescat has accurately predicted many major economic events and consequences, including the U.S. Housing Bust, the Global Financial Crisis, Global Currency Wars, and the Oil Price Collapse. Our clients have benefited handsomely. The Crescat investment team conducts rigorous, independent macroeconomic research to get these foundational themes correct. We analyze a broad spectrum of macroeconomic factors, including cross-border capital flows, money supply trends, and debt-to-GDP imbalances. We consider interest rates, inflation, commodity supply and demand, and geopolitical risks. We form hypotheses and test them with data and logical analysis through both internal and external debate. The resulting macro themes shape the portfolios and are summarized in our quarterly investor letters. Our themes guide our exposures, long and short, in countries, currencies, asset classes, markets, sectors, and industries.

Fundamental Equity Model

Comprehensive. Disciplined. Unemotional. Crescat’s discounted-free-cash-flow valuation model is an essential component of Crescat’s long-term track record in all of its strategies.

On a daily basis, the model values the 2,000 largest and most liquid global equities that trade on a U.S. exchange based on more than 50 underlying fundamental factors. The model was originally developed in 1997 by Crescat’s Chief Investment Officer, Kevin C. Smith, CFA. He and his investment team have continuously refined and applied it since.

The model discovers mispriced companies with fundamental catalysts for change. It provides an abundance of timely entry and exit signals for individual stocks. Crescat’s analysts overlay independent qualitative research to validate the model signals and integrate them with the firm’s macro themes providing a sound investment thesis for every position in the portfolios.

Prudent Risk Management

At Crescat, capital preservation is paramount. But protecting capital does not have to come by sacrificing returns. We are committed to delivering strong risk-adjusted returns compared to other investment managers and market benchmarks. Crescat measures its success by risk-adjusted return measures such as Alpha, Sortino Ratio, and Omega Ratio. We excel in these measures by maintaining diversified portfolios of non-correlated securities with a variety of independent macro and fundamental drivers. We hedge against macroeconomic imbalances. And, we fortify our portfolios with diverse free-cash flow streams in highly liquid securities. We use a conditional value at risk (CVaR) model and adhere to portfolio construction rules and limits in all of our strategies.

Crescat has a strong culture of internal controls and advanced multi-broker, multi-custodian trading platforms, order management systems, and portfolio accounting systems. Crescat has a long-term history of strong profitability and low debt.