Crossover Investor

A crossover investor describes a public equity market investor who is also active in multiple segments of the private investment markets from non-public company pre initial public offering (IPO) stage up to, through and after the IPO. Crossover investors include traditional mutual funds, hedge funds and family offices among others.

A crossover investor's goal is to get the highest returns possible by investing in attractive companies at numerous stages (early, mid, late) — for instance, Series B and C funding rounds, mezzanine debt or IPO — of the business life cycle. This is different from buy and hold investing, where the investor does not trade between the period that a security is first bought and until it's finally sold. Crossover investors aim to achieve high returns across short-term periods as opposed to buy and hold investors who are focused more on long-term growth.

Crossover investing strategies tend to be popular in the technology industry. Crossover investors will be committed to the company they are investing in and stick with these companies for years. A 2017 CB Insights report on the Top Crossover Investors in HR Tech Companies named Goldman Sachs, T. Rowe Price and Silicon Valley Bank among the top four based on their deal activity during 2016.

Crossover investing also applies to debt, both public and private, financing markets. In fixed income markets, it is used to describe institutional investors who participate in both investment grade and non-investment grade, or high yield, securities. In this case, crossover debt is bonds, notes, loans and other fixed income securities outstanding from companies that are on the cusp of investment grade, whether because their credit ratings have recently been downgraded and they are now “fallen stars,” or because they have been identified as “rising stars” with upgrade potential. The term crossover investor also describes those who invest in both developed markets, (e.g. the United States, European Union) and emerging markets (e.g., China, India, Brazil, Russia) debt.

Whether they are active in equity or debt markets, the risk with corporate investors is that a change in sentiment or perceived risk could cause them to suddenly pull back from a given market sector. Asset classes and market sectors with a high proportion of crossover investors are most exposed to the negative impact on valuations and potential financing difficulties from a sudden loss of risk appetite.