When the Chinese e-commerce company Alibaba Group Holding likely goes public later this year, the IPO could wind up being one of the biggest and most anticipated in U.S. history.
Published reports say the company — which the Wall Street Journal describes as “a mix of Amazon, eBay and PayPal, with a dash of Google thrown in” — could be valued as high as $200 billion. When the IPO happens, several hedge fund firms stand to benefit in a meaningful way.
Last weekend Alibaba said it will begin the process for an IPO in the U.S. Pundits are speculating the company will sell a 12 percent stake, which could work out to more than $18 billion, based on an initial $153 billion valuation. At the moment, it is not clear when exactly it will begin selling its shares, at what price or even the number of shares.
One of the firms that will likely be sitting pretty whatever price Alibaba fetches on the day it finally completes the offering is Tiger Global Management, the New York–based hedge fund and private equity firm founded by Tiger Cub Charles (Chase) Coleman III. In its year-end letter to its hedge fund investors, Tiger Global disclosed that between September and December 2013, its hedge funds — Tiger Global and its offshore counterpart — and private equity fund Tiger Global Private Investment Partners VII bought stakes in Alibaba. As a result, the firm owned a total of 0.32 percent of Alibaba. The stake also represents a 1.5 percent position in the hedge fund, which reported it has 6.9 percent of its hedge fund equity invested in private companies in general.
On February 11, Tiger Global agreed to shell out $199 million to buy an additional stake in Alibaba from Chinese video game company Giant Interactive Group, according to a regulatory filing from Giant.
Another hedge fund that is poised for a big payoff is Paul Hudson’s Greenwich, Connecticut–based Glade Brook Capital Partners. Several years ago it launched Glade Brook Private Investors, a pre-IPO private equity fund formed to invest exclusively in the equity of Alibaba. Last year the fund returned about 219 percent net of fees. Earlier this year Glade Brook launched a new private equity fund, Glade Brook Private Investors II, which raised nearly $127 million.
In addition, the firm told clients earlier this year that its hedge funds will participate in the firm’s pre-IPO private equity strategies beginning this year, noting that the decision was made “after consultations with our limited partners.” Hudson said he thinks these pre-IPO strategies will help the hedge funds to generate excess returns.
Glade Brook was founded in October 2011. Hudson worked for Chris Shumway’s Shumway Capital Partners from 2007 through 2011, most recently as a managing director and head of the communications, media and entertainment group. Glade Brook is among four hedge funds Shumway has seeded since he shut down his hedge fund firm in early 2011.
Other hedge funds are investing in Alibaba through two publicly traded companies — Japan’s SoftBank and Yahoo — which have significant stakes in the Chinese Internet company. In his year-end letter to investors, Third Point’s Daniel Loeb told clients SoftBank, which owns a roughly 37 percent stake in Alibaba, was one among three core investments that he identified.
“SoftBank has a portfolio of high-profit, cash-generative growth businesses with critical events expected to unfold in 2014,” Loeb wrote in the letter.
Loeb also has long held a large activist position in Yahoo, which owns 24 percent of Alibaba. And even after halving his stake to 8 million shares in the fourth quarter, the New York–based hedge fund manager still counts the Internet giant as his fifth-largest holding with about 5.58 percent of equity assets. Tiger Global also owns more than 9 million shares of Yahoo at the end of the fourth quarter, making it the firm’s seventh-largest holding.
New York–based D.E. Shaw owned more than 8.6 million shares, while Greenwich, Connecticut-based JAT Capital Management counted it as its seventh-largest holding, and New York–based Jericho Capital Asset Management made Yahoo its second-largest holding after establishing a new 3.34 million–share position in the fourth quarter.
Earlier this week, data and research firm S&P Capital IQ said in a brief note that a U.S. IPO of Alibaba, especially over the nearer term, would help enhance its value and thus the value of Yahoo’s stake. It said it estimated the after-tax value of Yahoo’s stakes in Alibaba and Yahoo Japan as collectively worth some $23 per share, with more than two thirds coming from Alibaba. Little wonder then that in January the research firm upgraded the shares to Buy from Hold.
