Maverick

Maverick Capital
300 Crescent Court
18th Floor
Dallas, TX 75201
(214) 880-4000 Phone
(214) 880-4020 Fax

Maverick Performance
Five Years
Fourth Ended Since Since
Quarter Year 12/31/16 3/1/95 3/1/95
Net Performance 2016 2016 Annualized Annualized Cumulative

Maverick Fund LDC (4.0%) (10.6%) 8.7% 11.3% 927.1%

Maverick Levered (8.2) (20.9) 14.9 17.6 3,323.0

Maverick Long (1.9) 1.1 14.8 12.4 1,175.8
Maverick Long Enhanced (3.0) (1.6) 15.4 14.1 1,665.9
Maverick Select (1.5) (12.3) 6.8

S&P 500 Index 3.8 12.0 14.6 9.3 597.2

Morgan Stanley World Index 1.9 7.5 10.4 6.8 316.9
HFRI Equity Hedge Index 1.3 5.5 5.5 9.5 621.1

The above results should only be read in conjunction with the Maverick Disclosure Statement found at the end of this letter.

January 17, 2017

Maverick Fund LDC 2016 Year End Letter

You've got to know when to hold 'em

Know when to fold 'em

Kenny Rogers

By almost any measure, 2016 was one of Mavericks worst years in our history. Indeed, 2016
was just our third down year ever. As you may expect, such poor performance requires several
different drivers, many of which we discuss below. However, the primary culprit was inferior stock
picking. Mavericks long/short spread in 2016 was the worst for any four quarter period in our history.
As detailed below, our conviction that the large majority of investments that were costly will prove to
be mistakes of timing rather than judgment is quite high. We also take comfort in the fact that
Maverick has a long and consistent history of generating strong returns after periods of loss and after
periods of generating negative long/short spread, as shown at the end of this letter.
 As we discussed at our Annual Meeting, 2016 was a tale of two very different halves for
Maverick. Our core funds ended the first six months with performance roughly in line with
international equity markets and long/short equity indices and did so with much less volatility than
either during the first quarter, which was a very challenging period for most funds. The second half of
the year was unfortunately a very different story. After generating a positive long/short spread in the
first half of the year, over the second half of the year Maverick suffered its worst two quarter
long/short spread in our history by a meaningful margin (-12.4% which was more than 300 bps worse
than the previous two quarter low).

While our investment strategy has been quite consistent since our inception, we have always
taken the approach that it is imperative to identify ways to improve our ability to execute our strategy
year after year. When I consider the quality, intensity and consistency of our processes and team, the
progress we have made over the last decade is remarkable. Despite this disappointing six-month
period, I strongly believe we are better investors today than we have ever been.

Sometimes, periods of poor performance can be great educators as they often highlight flaws in
investment disciplines or processes that should be improved. Both 2003 (our worst year ever in terms
of performance relative to the equity markets) and 2011 (our second down year) were great examples
of years that were painful at the time but drove lessons and improvements that proved critical to future
success.

On the other hand, driving a portfolio through a rear-view mirror can be extraordinarily
counter-productive. In other words, if a particular style, factor bias or even individual investment has
not worked over a period of time, often that particular aspect of the portfolio is far more likely to be
productive going forward. A critical skill as an investor is the ability to distinguish whether a poorly
performing investment is a mistake that should be exited or an opportunity that has become more
attractive that merits incremental capital. I believe one of the reasons we have enjoyed such
consistency in recovering from periods of poor performance is that over time we have demonstrated
the ability to discriminate between errors and opportunities.

As the opening quote perhaps foretold, we strongly believe that many of the trends that drove
our disappointing performance over the past six months are unlikely to persist, and therefore this would
be a very inopportune time to reverse course on our portfolio. On the contrary, we had substantially
more capital invested in individual stocks that were costly in the second half of the year at the
beginning of 2017 than we did at the beginning of the third quarter of 2016. Specifically, in the second
half of last year 33 individual positions cost Maverick Fund more than 20 basis points (11 were longs,
and 22 were shorts). Two of these were short positions that were acquired in the third quarter, as we
discussed in some detail at the Annual Meeting. Of the remaining 31 positions, 27 were still
investments at the beginning of this year a clear indication that we have concluded that these losing
positions will prove to be very compelling. As a matter of fact, Mavericks exposure to these 27
investments increased 68% over the second half of the year and represented 78% of total invested
capital by year end an historical high. In other words, we have never entered a year with more
conviction in positions that have recently proven costly.

This high level of conviction is driven by our bottom-up assessment of each and every one of
our 86 long and short positions, which is the lowest number of primary positions we have ever held
entering a year. However, we also take comfort in the fact that several trends that have been
challenging for our fundamental approach appear unlikely to persist.

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 For example, the past twelve months has seen the largest outperformance of cyclical, or
economically sensitive, industry sectors (such as energy, materials, financials and consumer
discretionary stocks) versus defensive industry sectors (such as healthcare, telecom, utilities and
consumer staple stocks) since the twelve months from March of 2009 to March of 2010, as shown in
the below chart.
Performance of Cyclical Sectors Relative to Defensive Sectors
12m Relative Return Post Election Peak

35%

25%

15%

5%

-5%

-15%

-25%

-35%
2001 2004 2007 2010 2013 2016

What is rather remarkable in my mind is the contrast between the world of April 2009 and January
2016 when these two periods started:

April 1, 2009 January 1, 2016

Annualized GDP Growth (3.5%) 1.9%

Unemployment Rate 8.3% 4.9%
Trailing 6 month Average Payroll (709,000) 237,000

Median S&P 500 EBIT Margin 14.0% 17.5%

Median S&P 500 P/E 12.8x 17.5x
Median S&P 500 EV/Sales 1.3x 2.6x

I was personally stunned by the continued strength of such stocks given the dramatic differences in the
starting point of this outperformance and, as shown above, the fact that these are the two most
dramatic such rallies since the beginning of this century. As we have discussed in these letters many
times in the past, as fundamental investors we gravitate towards businesses and industries whose
success or failure is determined by secular trends and competitive advantages, as opposed to stocks
whose fate is largely dependent upon economic cycles. Therefore, when cyclical stocks lead the
market it is not surprising to see Mavericks long investments underperform.

We believe that the relative performance of such stocks is extended and likely to reverse. This
conclusion is driven not just by the historic outperformance of economically-sensitive stocks, but also
by concerns about the sustainability of the current expansion. As the below chart shows, at 85 months
this is the fourth longest expansion since World War II.

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 Duration of Post-WWII Expansions
140 (Months)
120
120
106
100 92
Average = 61
85
80 73

58
60
45
37 39 36
40
24
20 12

0
Q4 Q4 Q2 Q2 Q1 Q4 Q1 Q3 Q4 Q1 Q4 Q2 '09-
'45- '49- '54- '58- '61- '70- '75- '80- '82- '91- '01- Q3 '16
Q4 '48 Q2 ' 53 Q3 ' 57 Q2 '60 Q4 ' 69 Q4 '73 Q1 '80 Q3 '81 Q3 '90 Q1 '01 Q4 '07

According to the Atlanta Fed Wage Tracker benchmark, wage inflation is now running at 3.9%, which
is twice the level of less than five years ago and the highest seen since November of 2008. Likewise,
the ISM Prices Paid index, a measure of business sentiment regarding future inflation, closed the year
at its highest level in over five years. Not only is inflation rearing its head, but unemployment is down
to levels not seen since early 2008. None of these measures would be typical of an economy that is
about to expand further.

Likewise, growth stocks also suffered their greatest underperformance relative to value stocks
since that same twelve month period ending March of 2010.

High Growth versus Cheap Value

12 Month Relative Return Post Election Bottom

25%

15%

5%

-5%

-15%

-25%

-35%

-45%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Below you will find statistics regarding the profiles of our long and short portfolios. As you can see,
we have taken advantage of this underperformance and collectively our longs now have a very
attractive growth profile and yet trade at a discount to the market. As the above graph shows, such
underperformance of growth stocks has proven fleeting over time.

While many still equate high growth stocks with high beta stocks, in reality that is an outdated
paradigm. Unlike the late 90s, many higher growth businesses today have very steady growth profiles
resulting in rather modest betas. Even as growth stocks waned over the last two months the relative

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valuation of higher beta stocks soared. The valuation premium of high-beta stocks to low-beta stocks
reached levels not surpassed since 2002, as shown below.

Composite Valuation of High Beta versus Low Beta Stocks

High v. Low Beta Post Election Peak
1.60

1.20

0.80

0.40

(0.40)

(0.80)
2000 2002 2004 2006 2008 2010 2012 2014 2016

Given our longer-term focus we tend to invest in steadier, lower-beta businesses especially when
such stocks trade at such a dramatic valuation discount to higher beta stocks. At year end, our long
portfolio had a beta of less than 1.0.

In our first quarter letter we pointed out that 2016 would likely be a record year with regards to
hedge fund redemptions and closures. Although year-end figures have yet to be released, it appears
that this conjecture may prove to be correct. Given this concern, we closely monitored our exposure to
stocks with high hedge fund ownership in the past year and consistently maintained far lower
ownership in such stocks than the average long/short fund.

High Hedge Fund Ownership versus Low Hedge Fund Ownership

12 Month Relative Return Post Election Bottom
30%

20%

10%

0%

-10%

-20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

As the above graph shows, this decision was helpful (at least we got one thing right!) as stocks with
high levels of hedge fund ownership underperformed stocks with low levels of hedge fund ownership
to a degree only seen before in the midst of the financial crisis. In 2008 the sell off of such equities
was driven by massive deleveraging of long/short funds as the viability of the financial system and
critical financial institutions was called into question. We believe the dramatic underperformance of

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such equities is unlikely to persist, which is why we have allowed our exposure to such names to rise
over the last several months (albeit at levels still modest compared to many long/short funds).

Clearly the elections proved to be a major driver of the markets rally over the past month.
Investors have focused on the potential beneficial impacts of lower corporate tax rates, expensing
capital investments, repatriation of offshore capital and massive deregulation across many industries.
While we are fully attuned to the potential positive impact of such changes, we have also not lost sight
of the many challenges of implementing such drastic policy changes that could have enormous
ramifications for the receipts of both federal and state governments, corporate investment decisions,
balance sheet structures, trade policies, corporate profitability, etc., etc.

The list of disparate objectives and potential policies among President-elect Trump, his cabinet
nominees, the House of Representatives and the Senate is large and seems to grow daily. Furthermore,
uncertainty on a range of important foreign policy issues has arguably never been higher. Some of the
proposed trade and tax policies could be highly inflationary and deficit inducing. And did I mention
that the President-elect has a habit of sending random and sometimes bizarre tweets in the early
morning hours? Such uncertainty on a vast range of critical issues will likely breed higher volatility in
the equity markets.

Apparently this is a contrarian view. The volatility of the S&P 500 index over the final 100
trading days of 2016 was almost half of the long term average (9.6% versus 18.7%). Furthermore, the
VIX, which is an indicator of the markets expectation for equity market volatility, was down to 11.2%
in mid-January well below the long-term average of 19.7% and a level that is in the 3rd percentile
(meaning the VIX has been higher 97% of the time) since the index was created over 27 years ago.

90
VIX
VIX

9080
80
7070
6060
5050
40
3040
2030
1020
0
1/2/1990
1/2/1992
1/2/1994
1/2/1996
1/2/1998
1/2/2000
1/2/2002
1/2/2004
1/2/2006
1/2/2008
1/2/2010
1/2/2012
1/2/2014
1/2/2016

10

0
1990 1995 2000 2005 2010 2015

As the above chart shows, the markets perspective on expected volatility can change quickly and
violently. Often such spikes have been challenging for long/short equity funds, but we believe we are
well-positioned to endure a higher volatility environment.

Indeed, given our positioning Mavericks returns will be driven first and foremost by our
ability to generate long and short alpha. The dramatic discrepancies in the characteristics of our long
and short portfolios would argue that we are well-poised for such alpha generation. This is consistent
with our decisions to take advantage of many of the unfavorable moves that hurt our performance last
year, which was discussed at the beginning of the letter.
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 ---------------- 2017 ------- -------- ---------------- 2018 ------- --------
Maverick Maverick S&P 500 Maverick Maverick S&P 500
Longs Shorts Median Longs Shorts Median

Revenue Growth 9.0% 2.3% 4.3% 6.1% 1.9% 4.3%

EPS Growth 15.1% 2.4% 8.7% 16.6% 1.1% 10.3%

P/E 16.7x 18.0x 17.3x 14.0x 19.0x 15.9x

FCF Yield 5.9% 4.7% 4.6% 6.7% 4.8% 5.0%

Such a long/short spread (or even a fraction of such a spread) would allow Maverick to
continue our consistent history of generating strong performance after disappointing years. As I
mentioned in the beginning of this letter (ok, novel) 2016 was Mavericks third down year ever. But if
one were to look at every trailing four quarter period, as opposed to just calendar years, Maverick has
suffered worse returns than 2016 on six different occasions. The below table shows Mavericks
subsequent performance over one and two years following each of these disappointing periods.

Worst Four Quarter Subsequent One Subsequent Two

Periods Ending Net Return Year Return Year Return

December 2008 (26.7%) 23.5% 36.6%

June 2009 (20.2) 8.5 26.6
March 2009 (19.5) 26.9 38.4
September 2008 (16.6) 10.8 23.9
December 2011 (15.1) 15.1 34.3
September 2011 (14.9) 22.7 29.4
December 2016 (10.6) ? ?
Average 17.9% 31.5%

We have also enjoyed consistent and meaningful performance following four quarter periods of
negative long/short spread. Prior to 2016 we only suffered 14 four quarter periods (out of 80 total)
with a negative spread. The below chart looks at Mavericks returns in the subsequent one and two
years following each of these 14 periods.

Four Quarter Periods with Long/Short Subsequent One Subsequent Two

Negative L/S Spread Ending Spread Year Return Year Return

December 2016 (11.5%) ? ?

September 2011 (8.3) 22.7% 29.4%
December 2003 (7.0) 14.6 14.9
June 2013 (6.6) 15.0 41.2
September 2003 (6.5) 13.2 24.8
December 2011 (6.3) 15.1 34.3
September 2013 (5.2) 9.0 35.0
June 2009 (4.3) 8.5 26.6
March 2012 (4.3) 3.4 20.8
March 2010 (3.8) 9.0 0.9
March 2006 (3.4) 16.6 30.1

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 June 2006 (1.9) 21.8 41.4
June 2004 (1.3) 11.5 12.0
December 2005 (1.0) 12.4 43.6
March 2013 (0.7) 16.8 30.9
Average 13.5% 27.6%

As you can see above, Maverick has delivered positive returns for both one and two year periods
following every four quarter period in which our long/short spread was negative. Given the relative
attractiveness of our individual long and short portfolios and the fact that some of the market dynamics
that proved challenging for us in 2016 are unlikely to persist, we believe we are poised to continue this
track record. In other words, we like our cards and are holding em.

As always, all of us at Maverick appreciate your continued confidence in our efforts. I believe
I have made a statement along those lines in virtually every quarterly letter I have written to our
investors since 1993. However, I do not know if that sentiment has ever been stronger than now.
Despite delivering such disappointing and embarrassing performance, the Maverick Funds saw net
inflows from investors each month in 2016 culminating in the largest beginning of year inflows since
2001. The large majority of this capital has come from current investors. So again, the conviction is
much appreciated, and I can assure you that every member of the Maverick team endeavors to prove
your confidence well-founded.

I encourage you to read the attached discussion on retail shorts, our largest secular short theme,
by Andrew Warford. I hope you will be able to join us for our 24th Annual Meeting on October 12th
this year; once again it will be held at the Plaza Hotel in New York. In the meantime, please be quick
to touch base if you have any questions or advice.

Sincerely,

Lee S. Ainslie III

Managing Partner

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 Retail Shorts

Who won? A team that is known as...Da Bears! (Saturday Night Live: Bill Swerskis Superfans)

The short retail debate has clearly been won by the bears. Investors are keenly aware of the
traffic challenges and cost burdens facing bricks and mortar retailers and have started to appreciate the
fact that there is virtually no terminal value in many of these businesses. A short retail pitch in a
quarterly letter is perhaps the most obvious, prolific, and non-variant theme we can identify in global
investing over the last decade. So why are we writing about it as our largest short theme in
2017? Simple valuations today do not appropriately discount our view of the rate and/or
inevitability of decline in fundamentals and our conviction in the endgame is unwavering.

If the short retail theme is consensus, why dont valuations reflect that view? We believe a
potential answer can be found in thinking through how retail investing has evolved over the last
decade. While pervasive across the market, retail investors in particular have compressed their
investment horizons whereby much of their focus centers around fashion trends, weather impacts, and
calendar dispersions at the expense of underlying structural challenges and cyclical earnings
profiles. We can add significant value by stretching our time horizon and also applying lessons we
have learned from our success in other sectors namely the willingness to think about a zero terminal
value framework which is a prerequisite in the technology space as well as the valuation discipline of
thinking through normalized or cross-cycle earnings that we use repeatedly in our cyclical
sectors. This is a clear example where cross-sector learnings can be applied effectively and having
visited the technology graveyard and recognized where investors are playing a game of peak
multiples on peak earnings many times over the last 20 years, we are in a strong position to apply a
differentiated lens to the retail space as disruption intensifies.

While the theme has never been more topical and the investable market cap more material, it is
not one size fits all. In fact, we no longer believe the theme is Short Retail. We are now in the early
innings of what we believe is called Omni-Channel Evolution and stock selection has never been
more important.

Simply put, the landscape has changed. It is not about a simple assessment of the ecommerce
vs. bricks and mortar Battle Royale. Some ecommerce players have identified the merits of having a
physical presence in select locations (i.e.: Amazon planning to open book stores and grocery
stores). Some bricks and mortar retailers have invested heavily to increase their online presence such
that a meaningful portion of their business is now done online at competitive prices, with some product
categories actually seeing price parity in physical stores vs. on the internet.

Given all of the above, we cannot simply short bricks and mortar retailers facing secular
headwinds from ecommerce penetration that was yesterdays playbook. The playing field has
narrowed, and we need to pick our spots wisely.

There are 6 specific criteria we look for on the short side within our Omni-Channel Evolution
theme:

1. Ecommerce sensitivity: Not all bricks and mortar businesses are facing the same degree of
ecommerce pressure 55% of computer products are sold online vs. just 2% of household non-
durables items. While the absolute level of online penetration impacts todays addressable
 market, it is the change in penetration over the coming years that is critical. We are looking for
companies that sell products that will experience a material inflection in ecommerce
penetration over the coming years.

2. Low cost competitors: Ecommerce companies are not the only threat to traditional bricks and
mortar retailers. Companies with small retail footprints are often nimble with great box
economics in prime locations enabling a far better customer proposition. Share gains can be
material from the large, dated companies with less desirable footprints and high fixed costs
leading to a poor customer proposition.

3. Declining traffic: Mall traffic declines in the low single digit range overall; however, traffic
declines vary materially by mall (A, B, vs. C) and by category. As B and C mall anchors
continue to rationalize store footprints traffic, these locations will decline at accelerating rates.

4. Deflationary products: The formula is simple: price x quantity = revenue. We want to avoid
those companies that are able to offset a decline in quantity by selling products in inflationary
categories or leveraging brands with pricing power.

5. Peak Earnings: Most bricks and mortar retailers look inexpensive on a PE basis. We are
focused on identifying opportunities where the market is capitalizing the wrong E where a
company is overearning and quite expensive on an EV/Revenue basis.

6. Limited internal levers: Just because a company is facing a declining revenue or earnings
trajectory does not necessarily mean it is a short. We are focused on identifying situations
where self-help initiatives like buybacks and divestitures are actually value destructive and cost
reduction opportunities have already been harvested.

Within the Omni-channel Evolution theme, we have a number of opportunities that not only check the
box on each of the 6 criteria outlined above, but also present us with compelling why now moments.

Many US based retailers would benefit from the widely discussed potential reduction in the
statutory tax rate and increase in consumer spending we have no argument here should these policies
be enacted. That said, a number of US based retailers are now trading at prices that substantially
discount this outcome. In discounting the potential positives, the market has shifted the lens away
from the potential offsets most importantly, the secular and structural headwinds facing a number of
these retailers. This is a classic market mistake that we see across sectors, where for a variety of
reasons temporary cyclical forces are confused for shifts in structural secular dynamics. Our current
exposures while common in sector theme are diverse in idiosyncratic thesis: peak margins in the
deflationary apparel category, product cycle peak in consumer electronics, increasing rate of change in
ecommerce penetration in footwear, and more broadly under-appreciated margin headwinds for
businesses that have supported earnings with diminishing cost cut opportunities.

As we reflect on what has become a consensus Short Retail Theme, we see a number of
parallels that can be drawn to the market consolidator theme over the last 2 years (refer to the
discussion in our 1Q15 letter). There too the theme had become consensus - among companies and
investors alike - as a way to create shareholder value. Many copycats and bad actors emerged and
pursued a consolidation strategy, and there were a number of high profile examples that reminded
investors why the word rollup was a dirty word in most financial circles fifteen years ago. The Market

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Consolidator Theme proved very profitable for our investors not because we had the right
theme...because we had the right idiosyncratic investments within the theme.

As our investors know, a great theme does not merit capital at Maverick. In fact, some of our
most compelling themes represent 0% of our NAV today as the underlying expected value equations
of the names within those themes do not justify our capital. We believe this mindset is more important
than ever with respect to our largest short theme Omni-Channel Evolution.