Growth of the Californian Private Equity Industry

by Simon Li

  • 08 Nov 2016
  • PE
  • VC

While most often recognized for its burgeoning venture capital industry, the Californian private equity* industry has grown considerably in recent years. This blog intends to put this less discussed marketplace in the spotlight by exploring the growth of the industry over time and the fundraising efforts of managers based in the state.

As shown in the recent Preqin Special Report: Alternative Assets in California, the number of active California-based private equity firms has grown gradually since the early 90s: currently, 210 active private equity fund managers are based in California, up from 29 in 1996, representing an annual growth rate of 29.7%. Alongside this increase, there has been an associated rise in the assets under management (AUM) of California-based private equity firms, with fund managers holding a combined $185bn in AUM as of March 2016, up from $94bn in 2000.

Despite the steady growth in the number of California-based fund managers, the number of funds closed and aggregate capital raised has been inconsistent. Much like the rest of the global private equity market, following the Global Financial Crisis (GFC) California-based private equity fund managers experienced a tougher fundraising environment, with the total capital secured in 2008 less than half of the total raised the previous year, despite more funds reaching a final close. The fundraising market remained challenging in the following years, reaching a low point in 2010 when only $5.2bn was raised. Although fundraising has experienced a resurgence since then, California-based fund managers have yet to reach the levels seen in the pre-GFC era. However, this is in line with the trend seen across all US-based private equity fund managers.

Preqin’s Private Equity Online features details on 35 private equity funds managed by California-based managers that have held a final close in 2016 so far, with a combined $28.7bn raised in capital commitments. This total also includes eight firms that have raised their first private equity vehicle, accounting for an aggregate $1.5bn. The largest California-based fund closed in 2016 so far is Green Equity Investors VII, which secured $9.6bn in June for middle-market investments in retail, distribution, healthcare, aerospace/defence and consumer & business services.

Despite some uncertainty in the US due to slow economic growth, the upcoming presidential election and reservations surrounding highly priced equity markets, California-based private equity fundraising should remain relatively stable, with 82 private equity funds currently in market targeting an aggregate $37.4bn – up from 79 funds seeking $27bn this time last year.

*Excluding venture capital. Private equity fund types include balanced, buyout, co-investment, co-investment multi-manager, direct secondaries, secondaries, fund of funds, growth and turnaround

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