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Hedge fund's $250 million bet values Alibaba at up to $200 billion

Wednesday, 29 Jan 2014 | 12:48 PM ET
Andrew Harrer | Bloomberg | Getty Images

A rising hedge fund star has made a big bet on Chinese e-commerce site Alibaba, believing the company will be worth at least $200 billion when it goes public.

Glade Brook Capital Partners, the hedge fund firm founded in 2011 by Shumway Capital Partners veteran Paul Hudson, has amassed a roughly $250 million stake in private shares of Alibaba, according to a person familiar with the situation.

Yahoo owns about 24 percent of Alibaba, which is expected to hold an initial public offering in 2014 or 2015. Expectations are high for the IPO--which is likely to be held either in New York or Hong Kong--and could be one of the largest in recent years.

Hudson set up a private equity-style fund in August 2012, Glade Brook Private Investors, solely to invest in Alibaba. An initial round of fundraising in September 2012 took in about $30 million, which was used to purchase shares during an Alibaba financing round. That valued the company at about $35 billion.

Glade Brook finished raising a new round of capital this week, adding about $125 million by buying shares from other investors on the secondary market, according to the person. The firm now values Alibaba at approximately $140 billion, meaning its total investments are worth roughly $250 million.

But Hudson thinks Alibaba will go public this year or next and will trade at a valuation of $200 billion or higher, according to the person, who is familiar with Glade Brook's views. Hudson also believes the company is worth even more in the long term.

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Hudson declined to comment. Spokesmen for Alibaba and Yahoo didn't immediately respond to a request for comment.

Glade Brook's investment comes the same week that Yahoo reported continued growth--if slightly slower--for Alibaba in a quarterly earnings report. Alibaba posted revenue growth of 51 percent to $1.78 billion during the third quarter, less than the previous quarter (Yahoo reports Alibaba's financials a quarter late).

Shares of Yahoo fell following the announcement, despite Alibaba also reporting net income of $801 million for the quarter, an increase from the $717 million in the second quarter.

(Read more: Yahoo shares fall as Mayer fails to stem revenue decline)

Glade Brook was recently joined by hedge and private equity firm Tiger Global in betting on Alibaba.

Tiger Global, led by Chase Coleman and Feroz Dewan, purchased roughly $200 million worth of shares, which valued Alibaba at about $125 billion, according to a report in USA Today. A spokeswoman for Tiger Global didn't immediately respond to a request for comment.

Older Alibaba investors include American private-equity firm Silver Lake Partners and Russian venture company Digital Sky Technologies, according to media reports.

(Read more: Alibaba's growth slows for Yahoo, IPO buzz builds)

Hudson is a rising star of the hedge fund world. He launched with about $250 million in late 2011, $100 million of it in seed capital from former boss and Tiger Management alumnus Chris Shumway.

Glade Brook, based in Greenwich, Conn., has performed well since using a focus on technology, media, telecommunications and consumer companies. The flagship hedge fund gained approximately 13 percent net of fees in 2012 and 20 percent net of fees in 2013, according to an investor in the fund. That, combined with investor interest, has grown the firm to $1.1 billion under management today.

About $830 million is in Glade Brook's hedge funds and about $300 million is in private equity vehicles, include the Alibaba-focused fund, technically a "special purpose vehicle." Glade Brook's hedge funds also have a small investment in Alibaba.

—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.

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