Big-Name Hedge Funds Pile Back into Alibaba

The Chinese e-commerce titan saw a surge of new and returning investors during the third quarter.

Hedge funds are rediscovering Alibaba Group Holding, the Chinese e-commerce giant. The big question, though, is whether it is a case of too little, too late.

In the third quarter a large number of high-profile hedge fund firms, many of them with roots to Julian Robertson Jr., piled into the stock, taking big initial stakes that became top holdings in their portfolios. Other hedge funds with previously small positions made major additions to their holdings. Several of the buyers were early investors who had previously exited and got back in during the recent three-month period.

It’s unknown how much these hedge funds paid for their shares. Alibaba’s stock surged about 33 percent during the third quarter, to $105.79. But to participate in all or the bulk of the quarter’s gain, an investor needed to have bought shares by the first week of August.

Anyone who purchased Alibaba at the end of the quarter would now be down about 13 percent because the stock has gotten whacked along with many other technology shares since the U.S. presidential election. On November 15, Alibaba closed at $91. However, it’s still up since early July.

The biggest new investor in the third quarter was Chase Coleman’s Tiger Global Management, which bought more than 5.37 million shares, making Alibaba the Tiger Cub’s fifth-largest U.S. long position. The firm was followed closely by another Tiger Cub, Lone Pine Capital, which picked up some 5.15 million shares. However, Alibaba ranks only No. 21 among U.S. longs at the outfit headed by Stephen Mandel Jr.

Other notable hedge fund managers that took huge new stakes in the third quarter include a group of New York firms: Coatue Management, Duquesne Family Office, Highbridge Capital Management, Third Point, Tremblant Capital Group, and Tiger Legatus Capital Management.

Tiger Global was one of a number of hedge funds that made sizable investments in Alibaba when it was a private business, but the firm liquidated its stake within a year or so, after the company went public, in September 2014.

Several other firms heavily boosted their holdings in the third quarter, including Jericho Capital Asset Management, Moore Capital Management, and Passport Capital.

“There were heightened expectations for the company at the time,” says a staff member at a firm that did much of the recent buying. “People felt there was a compelling possibility of a building-out of cash services like Amazon.”

“Alibaba dominates three diverse businesses in China: eCommerce, cloud, and online financial services,” Passport told clients in its second-quarter letter, dated August 1 and obtained by Alpha. “Alibaba is the dominant leader in China eCommerce with mid to high 30 percent annual revenue growth and a competitive position we assess as superior to Amazon’s in the U.S. It is the dominant leader in China’s public cloud (similar to Amazon AWS in the U.S.), growing at a triple digit rate.” At the time, Passport also called Alibaba’s valuation “compelling.”

However, investors have been hurt in recent days by the sell-off in Internet and other tech stocks as well as Chinese companies since Donald Trump’s election as president. In anticipation of a possible infrastructure building boom, investors in general have rotated out of the high-flying tech sector into construction, materials, and related stocks.

They also fear that Trump will follow through with his campaign promise to launch a trade war with China. “Certain investors like the fundamentals long-term, while others are skeptical,” says one hedge fund investor with a position in Alibaba.

Some who flocked to the company during the third quarter may already have pared their positions or bailed out altogether. We’ll know in mid-February — when the next round of quarterly stock holdings is filed with the Securities and Exchange Commission — if not sooner.