Hedge funds are angered by their inability to fully participate in Alibaba Group Holding Ltd (NYSE:BABA)’s IPO.  The share price debuted at $68 per share, and has jumped to $90.60, for a $22.57 gain or 33.18% return at the time of this writing.

On Monday, a sell off on all major US technology company stocks were seen as institutions, hedge funds, investment firms prepared themselves to buy into the most lucrative IPO of all time.  A play in Alibaba Group Holding Ltd (NYSE:BABA) is a play into China’s fast growing e-commerce market.

Facebook, Twitter, Linkedin, and Yelp were among those affected.

Yelp (NYSE:YELP) was at a $81.78 price point earlier this week, and has dropped to $75.05 since.

LinkedIn (NYSE: LNKD) dropped from $225.00 on Monday to $207.37, wiping away nearly 12.5% or $3 billion of it’s market cap in one day.

Twitter (NYSE: TWTR) saw a sell off as well, from earlier highs of $53, and has dropped off to $48.57 per share as well.

Typically, hedge funds will have first dibs on pre-ipo shares of companies they wish to acquire.  This is an example where even hedge funds with a lot of money may not be able to subscribe to the pre-ipo round, and have to acquire shares at expensive prices on launch date.

“Early believers were more likely to obtain shares, since Alibaba knew these holders won’t flip their shares quickly for a quick buck but will believe in it’s long term vision.  Those looking for a quick flip would be given partial shares or no shares at all.”

One fund manager wished to obtain $200mm worth of shares, but received just under $1mm worth.  Another smaller investor received only 1,000 shares or $68,000 worth when they requested millions of dollars of shares.

Investors are not concerned or affected by international news in Europe where Scotland is voting regarding their independence.

This strategy of allocating only a partial portion of shares to the public could be a way to induce the institutions to buy the rest of the shares.  This strategy is seen to be working, as since the shares have gone up since the opening bell.

Another investor even attended the investor lunch, and believed his presence would allow him to pick up cheap shares, but this was not the case either.

Alibaba’s management wished to avoid Facebook (Nasdaq: FB)’s fiasco where the stock traded down immediately on IPO day due to trading glitches.  Alibaba carefully selected investors who were interested in their long term goals, and not interested for a quick flip.  As a result, shares were mostly allocated to mutual funds with retirement portfolios who were interested in a long term hold.  Some funds didn’t receive shares at all.

Despite the fact that $8 billion of pre ipo shares had no lock up, the stock did not trade down if the prior holders started selling into the public.  The demand was far too greater.

Those who had a connection to the company were more likely to receive IPO share allocations.  This proves to show that having an in with the management prior to the IPO could help investors to obtain affordable shares.

Yahoo (NASDAQ:YHOO) stock has been doing well since, from their astronomical lows of $13 per shares, to its current price of $40.49.  Their run up has been attributed to their ownership in Alibaba Group Holding Ltd (NYSE:BABA) and the complex transaction issues which suggests that Yahoo (NASDAQ:YHOO) still holds a stake in the company.

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