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California-Based Investors in Private Equity – August 2012

by Firakh Patel

  • 29 Aug 2012
  • PE

California is a prominent region for all aspects of private equity asset class, from LPs with capital available to invest to GPs searching for deals. Historically, it has been the global centre of the venture capital industry and a vital source of capital for funds on the road – it is home to some of the world’s largest private equity investors, such as California Public Employees' Retirement System (CalPERS).

Preqin’s Investor Intelligence database currently tracks 271 private equity investors in California, which together manage over $4.5tn in assets. California-based LPs (excluding fund of funds managers) are, on average, below their target allocation private equity (10.5% of total assets under management), with investors in this region having an average current allocation to the asset class of 9.9% of total assets. This is slightly below the average current and target allocations of all US-based investors, which are 11.3% and 11.5% of total assets respectively. The largest investor type by number of LPs in California is foundations, which make up 28% of all investors based in the region, followed by endowments (13%) and fund of funds managers (13%).

With California-based LPs being on average below their target allocation to private equity and therefore potentially having capital available to allocate to the asset class should favourable opportunities arise, it is interesting to see which fund types these investors typically target. California’s prominence in the venture capital industry is reflected by 70.3% of all investors either having a preference for or having previously invested in vehicles with a venture capital strategy, compared to 63% of all US investors.  Other key strategies California-based investors target include buyout vehicles (55%) and funds of funds (43%). Interestingly, 47% of Californian investors are either open to, or have invested previously in, the information technology industry, which represents a vital part of California’s economy and a key area within its venture capital industry.

In terms of location preferences, 77% of California-based LPs unsurprisingly have a preference for investing in North America, with 63% previously having invested in the region. Despite this, a significant number of LPs are open to allocating capital to foreign markets, with 44% open to investing in Europe-focused funds and 35% having an appetite for emerging markets.

California-based LPs look likely to continue to be an important source of capital for the private equity asset class, with capital available to invest and, importantly for the venture capital industry, a preference for venture capital funds.

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