Cornerstone investor
Capital MarketsAn institution that commits to a set allocation at the eventual offer price before the roadshow starts, and is named in the prospectus.
Also written: cornerstone investors, anchor investor, anchor investors, cornerstone
A cornerstone investor agrees before the roadshow to take a defined allocation at whatever price the deal eventually prices. The commitment is disclosed in the prospectus, the allocation is guaranteed rather than discretionary, and the investor frequently accepts a longer lock up on those shares than anyone else in the deal.
What the issuer buys is a book that is already part built and a public signal that informed long term money has done the work and is willing to be named doing it. For a large deal, or a business the market does not already understand, that removes the risk of a book that never gathers momentum.
What the issuer gives up is price discovery on that slice. A cornerstone negotiates its position before the range has been tested, and the rest of the book knows it. If demand turns out far stronger than expected, the cornerstone allocation was agreed on terms the market would have beaten.
It is much more prominent in Europe and Asia than in the US, where formal cornerstone tranches disclosed in the offering document are far less standard. Describing cornerstone demand as free demand is the standard candidate error: it is bought with allocation certainty and sometimes with price.
Worked example
An issuer marketing a large IPO secures cornerstone commitments covering a meaningful share of the base deal before launch, named in the prospectus with a lock up longer than the standard one.
The remaining book is then easier to build, because investors are being asked to join something rather than to start it.
If the deal ends up several times covered, those cornerstones were allocated in full at a price set by a book they helped anchor, which is exactly the trade the issuer accepted in advance.