The alternatives market in the Golden State is booming, with private equity and hedge fund managers challenging venture capital prominence, Preqin, the data specialist, says.

The alternatives landscape in California, which is best known for its venture capital industry, has grown substantially in recent years as other private capital and hedge fund managers are increasingly drawn to the area, figures show.

The number of active California-based private capital firms has more than trebled since the start of 2000, according to the data from Preqin, and there are now a record number of 949 active fund managers in the Golden State. Total alternative assets currently stand at a record $732 billion. 

Unsurprisingly, the growth in the number of California-based managers has in turn led to a marked uptick in assets under management; the private capital industry (including VC) has increased to $464 billion as of end-2015, with hedge funds now controlling $268 billion. 

Venture capital remains a hot area in California, which is of course home to the technology and start-up hub of Silicon Valley. So far this year, 75 funds have closed, raising a record $20 billion and surpassing the previous full-year fundraising record of $19 billion, Preqin said. 

However, the level of unspent capital held by venture capital fund managers in the state has stayed fairly steady, growing from $38 billion to $40 billion over the same period. This indicates that firms are able to deploy capital into investment opportunities at a rate to match their increased level of fundraising, Preqin added.

“While California is most famed for its venture capital sector, the state is seeing increased growth and diversification across the entire alternatives industry, and is certainly one of the most prominent areas of the US,” said Felice Egidio, head of VC products at the firm.

“The private equity industry is seeing strong activity, with fundraising in 2016 set to approach the record levels achieved in 2008, while a record number of hedge funds have already been launched in 2016. Private closed-end real estate is still in its infancy in California, but the past few years have seen strong fundraising and the industry looks set to expand. 

“Despite this growth in other areas of the alternative assets industry, the venture capital industry remains prominent in the state. The total value of deals in the region has risen enormously since the start of 2014, and 2016 has already broken the previous full-year fundraising record. Although much has been made recently of the venture capital boom in China and India, it is clear that there is a lot of potential for growth left in the industry in California.” 

Looking more closely at the data, of all private equity real estate deals completed in the US so far in 2016, California accounts for nearly a fifth (19 per cent) of both the number and aggregate deal value. In 2015, California represented 17 per cent of deals, and 16 per cent of total deal value.

Meanwhile, California is the third largest state by hedge fund assets, after New York and Connecticut. The majority of active hedge funds (56 per cent) in California operate an equity strategy, with event-driven strategies representing the next highest proportion (11 per cent), Preqin said.