Canada Pension Plan Investment Board’s first direct investment in China is poised to yield huge rewards with the initial public offering of Alibaba Group Holding Ltd.

Canada’s largest pension fund invested in the e-commerce company on two fronts: a $100 million direct investment in 2011, and a $465 million commitment to a fund run by Silver Lake Management LLC, a U.S. private-equity firm that also owns a small share of Alibaba, filings show. Alibaba’s valuation has risen five-fold in less than three years, according to estimates compiled by Bloomberg.

The pension fund will soon join investors including SoftBank Corp. and Yahoo! Inc. in reaping gains from one of the largest IPOs ever. With Alibaba’s value now estimated at $168 billion, according to analysts surveyed by Bloomberg, the direct investment alone may be valued at $525 million.

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“Since we own a stake in Alibaba, I hope it prices very high,” said Canada Pension chief executive officer Mark Wiseman in a May 23 phone interview.

The Alibaba investment is part of a wider push by Wiseman to expand in China, where he sees opportunities to boost returns at the $219 billion fund that manages retirement money for 18 million Canadians. Canada Pension has 69 per cent of its assets abroad, including a $250 million venture with China Vanke Co. to invest in residential real estate in China.

The fund hired Agus Tandiono, a former Citadel LLC manager, in January in a push to expand investments in publicly traded stocks in Asia. Tandiono joined its Hong Kong-based unit, CPPIB Asia Inc., which is run by former Goldman Sachs Group Inc. banker Mark Machin.

Alibaba filed on May 7 for a U.S. IPO. The company and Yahoo, which is selling part of its 22.6 per cent stake in Alibaba, may raise as much as $20 billion, estimates of its valuation suggest, topping a 2008 offering by Visa Inc. to become the largest in the U.S., data compiled by Bloomberg show.

Alibaba didn’t specify the number or price of shares it will offer or what valuation it will seek. In its IPO filing it also didn’t name shareholders other than key executives, Yahoo, and Japan’s SoftBank.

Linda Sims, a spokeswoman for the Toronto-based fund, wouldn’t confirm the precise amount the pension plan has invested in Alibaba. She said the fund made a direct investment in the Chinese company.

The fund lists its first and only $100 million direct investment in China in its 2012 annual report, without making reference to Alibaba. The investment was made in the fiscal year ending March 31, 2012 with its partner Silver Lake, the report states.

“Due to commercial agreements we are not disclosing the size of the stake or the amount of equity invested,” Sims said in an email.

Canada Pension also benefits from a 2006 commitment to Silver Lake Partners III LP, a $9.6 billion fund established by the private-equity firm. Menlo Park, California-based Silver Lake used that fund to take a stake in Alibaba along with several other investments, according to data compiled by Bloomberg.

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When Silver Lake first purchased its Alibaba stake, in September 2011, along with investors including DST Global and Singapore’s Temasek Holdings Pte, the Hangzhou-based company was valued at $32 billion, people with knowledge of the matter said at the time.

The $168 billion value is based on an April survey of 12 analysts conducted by Bloomberg. The estimates for Alibaba ranged from $136 billion to $245 billion.

Ashley Zandy, a spokeswoman for Alibaba, and Jason Golz, a spokesman for Silver Lake, declined to comment on the investments.

As of Dec. 31, Canada Pension said its investment in the Silver Lake Partners III fund had a reported value and distributions worth $697.1 million. That’s a gain of about 50 per cent.

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