Lansdowne Partners, one of the world's biggest hedge funds, has taken a massive stake in the Royal Mail sell-off, sparking controversy that not enough stock was given to U.K. pension fund managers.
Royal Mail's shares opened 36 percent higher at 450p, way above the government's offer price earlier this week for the U.K's mail delivery service of 330p.
Landsdowne, along with sovereign wealth funds including ADIA (Abu Dhabi), KIA (Kuwait Investment Authority), GIC (Singapore) and Norges (Norway) were all given allocations of around £50 million ($79 million), according to people close to the deal.
(Read More: Institutions rush to buy into Royal Mail's 'stunning debut')
Based on the offer price and the £50 million allocation, the funds would already be sitting on a paper profit of some £18 million.
The Royal Mail, which began conditional trading on Friday, is the UK Government's biggest privatisation in over 20 years. It was heavily oversubscribed despite being priced at the top of the range, valuing the company at £3.3 billion at Friday's open. Retail investors were given shares worth just under £750 after more than 690,000 applied to own the postal service stock.
In total, the Government sold 33 percent of shares to retail investors and gave 10 percent to postal workers, in a bid to placate unions over the privatization process.
The Government will retain a 30 percent stake in the company with remaining stock being sold to so called institutional investors.
(Read More: British public flock to Royal Mail share offer)
However, according to sources, only one UK "long only" fund manager -- Threadneedle -- was among the top 10 shareholders, with The Royal Mail's advisers favoring foreign SWFs and US fund managers. Insiders close to the deal said that the top 10 shareholders had held talks at least five meetings with the Royal Mail about supporting the deal when it came to market.
It is thought that over 800 institutions fought over 300 bundles of shares, with no applicant receiving more than the 3 percent disclosure threshold.
London-based Lansdowne Partners is also the third-biggest shareholder in Lloyds Banking Group, and recently added to its shareholding after the Government's privatization kicked off last month.
(Read More: Britain set to price Royal Mail sale at top of range: Sources)
The move mirrors what happened in the initial public offering of insurance group, Direct Line, which was sold last year by 82 percent taxpayer-owned Royal Bank of Scotland. Like Royal Mail, the lead adviser was Goldman Sachs, and most of the share sale went to large UK money managers including Blackrock, Fidelity and Capital. Recent data suggests that 52 percent of the UK stock market is now owned by foreign investors, with active UK fund managers having little capital to deploy.
Royal Mail will be the third largest postal services listing behind Deutsche Post AG ($5.7 billion) in November 2000 and United Parcel Service Inc ($5.5 billion) in November 1999.
According to Mergermarket, the deal pushes the total value of UK flotations to $10.3 billion in 2013, up from $2.5 billion for the whole of 2012. It also marks the highest annual volume since 2007, which raised $16.5 billion on the UK stock market.
At $108.4 billion, global IPOs are up 15 percent from $93.9 billion in 2012 with London-based IPOs making up 9 percent of the total global volume, another post-crisis record.
Royal Mail's lead adviser, Goldman Sachs, is the top-ranking IPO bookrunner both for the UK and globally, marking one of the bank's most profitable revenue sources.
Sources close to the deal insisted that U.K. pensions funds would still gain significant exposure to the sale as investors in both the big U.S. funds and hedge funds like Landsdowne.