Open Sesame: Alibaba and the 16 Tiger Cub Hedge Funds

Jack Ma’s story is an inspiring one. But his biggest fans yet might be a group of highly successful hedge fund managers dubbed the “Tiger Cubs” for their association with Julian Roberston’s legendary asset management firm Tiger Management.

Tiger Cub Hedge Funds and Alibaba

Upon analyzing the latest quarterly 13F filings that show hedge fund positions as of 9/30/2014, we found some startling evidence of the conviction the Tiger Cub funds have in Ma’s business. In fact, Alibaba Group Holding, Inc. (NYSE: BABA) has catapulted to be the number two most widely held stock among the group, just behind Facebook. Out of the 50 Cubs we analyze, 16 have disclosed positions in the name.  That is 32% of the group, compared to just 10% of funds we track in our Hedge Fund Universe publicly filing the security.

Here are some interesting observations that shed light on the group’s conviction in the e-commerce giant. The top two BABA hedge fund managers by dollar value are Viking Global and Discovery, with a 4% and 10% position, respectively. Out of the 30 largest hedge fund investors in the stock, ten are associated with Tiger. In addition, if you were to tally up all the hedge fund dollars allocated to the name, 40% of the amount would belong to the Cubs. Julian himself might be the biggest believer of the group. His firm, Tiger Management, just disclosed a 29% position in the name worth over $100M. Here is a list all the Tiger Cub hedge funds, Seeds and Grand Cubs reporting an investment in the public equity of Alibaba:

Historically speaking, high consensus names (stocks with large number of Cubs invested) have been great for Tiger Cub funds. Our prior research shows that their highest contributors to performance all enjoyed a high degree of participation from Cubs. The detractors tended to be unique names held by very few Tiger descendants.

So far this trade particular trade in BABA has been working well. Some Tiger Cub funds may have had prior secondary market investments pre-IPO and profited handsomely.  Others may have been allocated the IPO and enjoyed the pre-market bounce it had upon trading.  On top of that, the price has rallied another 20% post IPO.

Still, some shrewd investors might ask if the trade has now become too crowded with hedge funds. As it turns out, that is not the case (yet). To be crowded, the trade needs to have a large number of managers invested at a high percent of daily volume. Hedge funds in aggregate, including the group discussed here, represent a mere 3.5% of all the shares outstanding, which amounts to approximately 265% of ADV for the giant company (average daily volume since IPO). While that might sound like a lot, compare this to a truly crowded name like Allergan where 112 managers represent 26% of shares outstanding and 4,000% of ADV. For BABA, even if all managers sell together, this is unlikely to really move the price meaningfully and have a lasting impact.

You can analyze the Tiger Cub hedge fund managers yourself using the Novus Overlap Matrix. Clicking on the position tab will show you the most popular positions among this particular group of managers.

Our clients run similar analysis on their own portfolios. Please contact us for more information.