Fund Managers: Why We Couldn’t Resist the Alibaba IPO (FE Trustnet)

In a FE Trustnet article, the managers of the Invesco Perpetual Pacific fund and the Fidelity China Special Situations investment trust explained why they bought into the Alibaba Group Holding (NYSE: BABA) IPO. Starting with William Lam, the manager of the Invesco Perpetual Pacific fund who first gave a detailed explanation about why he avoids IPOs:

“Yes, Alibaba’s founder and chairman Jack Ma is selling some of his shares, but that is not a significant portion of his stake. The largest seller is a minority shareholder, Yahoo, who has no control over the company and little control over the IPO process. The whole reason for the IPO was so that minority shareholders such as Yahoo could monetise their stake in a reasonably fair way. It is worth noting that another significant minority holder, Softbank, is not selling in the IPO. Even Yahoo is selling a smaller portion of its stake than it originally intended to.”

“We believe that the company’s management are more interested in creating a positive association with the Alibaba brand than they are in establishing a high price for the IPO.”

Meanwhile, Dale Nicholls, the manager of the £650m Fidelity China Special Situations investment trust was quoted as saying:

“Alibaba is clearly on track to be a globally recognised name and will be a company investors cannot ignore. Some of the key things to follow will be how it allocates capital going forward, including investments outside of China, but as long valuations remain reasonable relative to growth and returns of the business, I believe this is likely to remain a long-term holding in my portfolio.”

“The shift from offline to online in commerce is a global trend, but is occurring even faster in China partly because in the lower tier cities the traditional bricks and mortar infrastructure has not been built out to levels common in the west. Alibaba is at the heart of this change – gross merchandise value is on track to easily surpass $300bn this financial year, more than Amazon and eBay combined, and yet continues to grow at rates north of 30 per cent.”

To read the whole article, Lam, Nichols and Greenberg: The IPO we couldn’t avoid, go to the website of FE Trustnet.

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