Cornerstone Investors in Hong Kong: Lock-up, Disclosure and Cost

The cornerstone investor model — where institutional investors commit to subscribing for shares at the IPO price before bookbuilding — is more developed in Hong Kong than in any other major market. For pre-IPO companies, understanding the cornerstone dynamic is essential because it directly affects the offering structure. Cornerstone investors receive guaranteed allocation in exchange for a 6-month lock-up. They negotiate specific allocation amounts as a percentage of the offering, typically ranging from 15% to 40% of the total deal. The ‘cost’ to the issuer is not direct (cornerstone investors pay the same price as other IPO subscribers) but indirect: the cornerstone allocation reduces the free float available to other institutional investors, which can reduce post-IPO trading liquidity. Issuers must balance cornerstone demand against the need to have sufficient shares in the market for active trading. The optimal cornerstone allocation is typically in the 25-35% range — enough to provide deal certainty but not so much that it crowds out other institutional demand and creates an illiquid aftermarket.