As detailed in Preqin Special Report: Alternative Assets in California, the private equity & venture capital industry in California has grown significantly in the past decade, having seen increases in assets under management, average deal size and the number of active investors. The majority of the 346 California-based private equity investors profiled on Preqin’s Private Equity Online are concentrated in Los Angeles (118), the San Francisco Bay Area (100) and Silicon Valley (67). Foundations, endowment plans, wealth managers, family offices and public and private sector pension funds account for 89% of the state’s private equity investor population.
Collectively, the five largest California-based investors by allocation to private equity have almost $58bn in capital invested in the asset class. Venture capital is one of the primary strategies targeted by California-based investors, which is unsurprising given the proximity to entrepreneurial hubs like Silicon Valley and the San Francisco Bay Area. Three-quarters of the state’s investors in the asset class have a preference for venture capital, followed by 58% investing in buyout and 44% preferring growth investments.
Additionally, a third of California’s private equity investors will invest in first-time funds, including the five largest investors, which is just above the US-based investor average (31%). CalPERS, the largest pension fund in the US, set an industry example by developing an emerging and transition manager program. The program is aimed at investments in early stage funds with managers that demonstrate strong potential for success and also to provide growth opportunities to managers that are transitioning from early stage to more experienced managers. Similarly, CalSTRS created a proactive portfolio which targets investments in emerging managers via fund of funds or co-investment vehicles.
California is known for its entrepreneurial flair, with Silicon Valley regarded as one of the most innovative regions in the world. Investors in the state seem to follow suit, proven by their appetite for venture capital opportunities and their willingness to invest with emerging managers.