Alibaba draws interest from Tepper, Loeb, Cooperman

Hedge funds appear to be salivating over Alibaba.

The Chinese e-commerce company’s initial public offering is set for Sept. 19 and is already drawing significant attention from the so-called smart money.

Billionaire investor Leon Cooperman is one of Alibaba’s fans.

Read More Alibaba taking the world by storm, but what is it?

“We like what we see so far and we are highly impressed with Jack Ma and his management team,” Cooperman, founder of $10.4 billion hedge fund Omega Advisors, said in an email. He added that he had met with Alibaba executives and plans to invest in the stock once it goes public.

Three other major hedge fund investors who have shown interest in the IPO are Dan Loeb of Third Point, David Tepper of Appaloosa Management and Dan Benton of Andor Capital Management. All three were among the roughly 800 people—300 more than expected—who attended Alibaba’s first road show presentation Monday at the Waldorf Astoria hotel in Manhattan, according to witnesses.

Spokesman for their respective firms declined to comment or didn’t respond to requests on if the men planned to invest in the company. Loeb has previously invested in Yahoo and once called “hidden jewel” Alibaba “central to our investment thesis” in Yahoo.

Top hedge funds invested in tech stocks

AUM in Tech ($M)
Total AUM
Tech %
Renaissance Technologies Corp. 9,012 42,922 21.00%
Lone Pine Capital, L.L.C. 8,775 27,282 32.20%
D. E. Shaw & Co., L.P. 8,666 48,490 17.90%
Icahn Management LP 7,935 32,989 24.10%
Citadel Investment Group, L.L.C. 7,535 46,401 16.20%
AQR Capital Management, LLC 6,971 38,564 18.10%
ValueAct Capital Partners, L.P. 6,797 13,841 49.10%
Adage Capital Management, L.P. 5,550 38,641 14.40%
Orbis Investment Management Limited 5,487 24,097 22.80%
TCW Asset Management Company 5,211 24,346 21.40%
Coatue Capital, L.L.C. 4,314 8,133 53.00%
Greenlight Capital, Inc. 4,204 8,089 52.00%
Two Sigma Investments, LLC 4,143 20,996 19.70%
Millennium Management, L.L.C. 4,021 32,659 12.30%
Viking Global Investors LP 3,940 23,734 16.60%
Source: Novus, based on SEC 13F filings as of June 30, 2014

Read More Alibaba IPO demand strong, but it’s still early

Those hedge fund heavyweights have company.

Media reports indicate that Alibaba received enough orders to cover its entire IPO after just two days of its road show in New York and Boston this week. That account could not be verified; one hedge fund employee who spoke with a Morgan Stanley banker this week was told that “the books are building” and that there’s demand from around the world. The banker could not comment on if the deal was oversubscribed and by how much, according to the person.

A spokesman for Alibaba declined to comment. Spokesmen for the major banks running the IPO—Credit SuisseDeutsche BankGoldman SachsJPMorgan Chase, Morgan Stanley and Citigroup—also declined or did not respond to requests for comment. Major technology-focused hedge funds also would not comment, including Coatue Management, Viking Global Investors, JAT Capital Management, Discovery Capital Management, Maverick Capital and Jericho Capital Asset Management.

Some hedge funds have already bought into private shares. Those funds notably include Tiger Global Management and Glade Brook Capital Partners. Both firms declined to comment on if they would hold their shares at the IPO or buy more.

Read More Hedge fund betting on a $200 billion Alibaba

One hedge fund manager, who asked not to be named for fear of exposing his firm’s plans, explained his bullish view.

“A lot of people are obviously excited about this,” he said after attending the road show event Monday. “Every single fund is going to be playing this.”

The manager has long-held positions in the stock via previous Alibaba backers SoftBank and Yahoo and plans to invest at the IPO. He cited several reasons for his optimism.

One was that he expected Alibaba to continue to add revenue from mobile sales, as Facebook has effectively done in moving away from a reliance on desktop users. Assuming continued mobile growth, he said net income in 2015 could be closer to $10 billion, as opposed to the $7 billion projected by Alibaba’s bankers. As a result, he noted, Alibaba could be worth more than $300 billion—about $100 billion more than other estimates.

Other reasons he gave include the vast size of the potential Chinese market. He noted the country’s low use of credit cards and the dominance of Alipay, the company’s e-payment platform. He said Alipay could be worth $30 billion to $40 billion alone.

The IPO is expected to price between $60 and $66 a share, according to Alibaba’s prospectus. The person said the stock could eventually go to $100 a share.

“The deal’s obviously going to be very hot and very oversubscribed,” he said.

Read More Alibaba talks corporate governance to potential IPO investors

AUM in Tech ($M)
Total AUM
Tech %
Praesidium Investment Management Company, L.L.C. 778 1,164 66.80%
Cadian Capital Management LLC 2,225 3,338 66.70%
Shannon River Fund Management, L.L.C. 839 1,358 61.80%
Criterion Capital Management 1,896 3,308 57.30%
Coatue Capital, L.L.C. 4,314 8,133 53.00%
Greenlight Capital, Inc. 4,204 8,089 52.00%
ValueAct Capital Partners, L.P. 6,797 13,841 49.10%
Lakewood Capital Management, LP 541 1,234 43.90%
SRS Investment Management, LLC 1,066 2,440 43.70%
Parametric Risk Advisors LLC 640 1,500 42.70%
HHR Asset Management, LLC 1,063 2,531 42.00%
JAT Capital Management, L.P. 1,877 4,698 40.00%
The Baupost Group, L.L.C. 2,929 7,386 39.70%
Joho Capital, L.L.C. 583 1,475 39.50%
Matrix Capital Management, L.L.C. 820 2,085 39.30%
Source: Novus, based on SEC 13F filings as of June 30, 2014

One fund manager sounded caution on trading the IPO despite a generally bullish view on Alibaba.

“While we are very positive on the fundamentals of Alibaba—we have met with the company many times in China—there are reasons to be cautious about the stock in the near term,” Will Graves, head of approximately $200 million hedge fund Boardman Bay Capital Management, said in an email.

Graves has already played so-called synthetic shares of Alibaba by owning SoftBank and Yahoo. He said Boardman Bay has requested IPO shares and plans to invest if it prices in the expected $60 to $66 range.

“Unlike most IPOs, there is already a large and freely tradable portion of the float that will be in private hands. In fact, over the years, we have seen countless offers for shares in the private market,” Graves said. “The sheer magnitude of the offering, in addition to those private shares that are not locked up on the first day, may lead to more volatile profit-taking than normal.”

Indeed, private equity firms Silver Lake, Asia Alternatives Managementand Siguler Guff plan to sell some of their existing shares, according to the Alibaba prospectus.

This entry was posted in IPOS. Bookmark the permalink.

Leave a Reply