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The War between Alibaba Group Holding Ltd (BABA) And The Hedge Funds; And the Winner Is…

Alibaba Group Holding Ltd (NYSE:BABA) broke its promise with hedge fund managers and it is a big reason why the stock is continuing to decline as it struggles to reach a stable support level. A panel discussion on CNBC involving Shark Tank investor, Kevin O’Leary, CNBC’s Kate Kelly, Kenny Polcari of O’Neil Securities, and CNBC contributor Carol Roth revolved around how Alibaba Group Holding Ltd (NYSE:BABA) has been taught a lesson by Karma. 1

Kelly talked about how some hedge fund managers that she came into contact with complained that they didn’t get the share of Alibaba Group Holding Ltd (NYSE:BABA) pre IPO allocation that they were promised but merely a portion of it. Then there were others who complained that they didn’t get any stake at all.

Since hedge fund managers are notorius for flipping their allocation early to make an early quick profit on an IPO, Kelly suggested that could have been the reason why Alibaba Group Holding Ltd (NYSE:BABA)’s underwriters ditched the hedge funds. Supposedly this was supposed to have a stabilising effect on Alibaba Group Holding Ltd (NYSE:BABA)’s price.

As the panel dissected this issue Roth made an interesting observation. She said that contrary to what the underwriters thought, Alibaba Group Holding Ltd (NYSE:BABA)’s price would have been more stable if hedge funds were involved. Roth explained that as hedge funds would try to make a quick buck on Alibaba Group Holding Ltd (NYSE:BABA)’s IPO this would have restricted the stock from almost toucing $100 on the opening day. She surmised that it would have stuck in the mid $90’s range and hence Alibaba Group Holding Ltd (NYSE:BABA)’s fall would have been less steep.

O’Leary agreed and said that it would even be much lower than the mid $90’s range. He explained how the hedge funds were in a way cheated out of their profits.

“[…] The hedge fund universe got cut back in the last hour, that’s what happened. They had allocations, it was remarkable on this giant IPO but the big books that you talked to got slashed and hacked and burned and they are very unhappy […],” said O’Leary

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