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California Leads the Nation in Private Equity Investment

Friday, October 25, 2019

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California is leading the nation in private equity investment, according to a report compiled by Ernst & Young and the American Investment Council.

The study shows the private equity industry directly supported more than 1.1 million jobs in 2018. Those workers averaged $73,000 a year and collectively earned $82 billion in annual wages and benefits. That boosted the Golden State’s economy by $144 billion through their contribution to the production of goods and services.

When indirect jobs are figured in, those numbers ramp up to nearly 3.4 million jobs, $220 billion in annual wages and benefits, and an economic boost of $379 billion for California’s economy.

Private equity funds invest in a range of industries, including energy (such as solar power), healthcare, manufacturing, retail and technology.

Not a surprise

Those numbers don’t surprise economist Robert Kleinhenz, executive director of research for Beacon Economics in Los Angeles.

“We are the largest state economy and we’re a magnet for venture capital in a big way,” he said. “We have lots of big established firms and others that are up and coming. In spite of the fact that we have a reputation of being an expensive place to do business, we’re doing just fine.”

How private equity works

Private equity firms partner with investors to form funds that invest in companies — primarily businesses in need of retooling or companies looking to grow. The aim of the investment, which often takes the form of a majority stake, is to help bolster the company through use of the private equity firm’s access to capital and its financial and operational expertise.

Private equity funds invest across a range of industries, including energy, healthcare, manufacturing, retail and technology. In 2018, the U.S. private equity sector included more than 3,800 private equity firms and 15,000 private equity-backed companies, the report said.

Texas ranked second, followed by New York, Florida and Illinois

California’s closest competitor in the private equity realm was Texas, where the industry supported nearly 2.2 million jobs last year and generated $144 billion in annual wages and benefits. That gave the Lone Star State an economic boost of $244 billion.

The remaining states in the top five are listed below:

  • New York: 1.7 million jobs; $109 billion in annual wages and benefits; and $183 billion in added value to the state’s economy
  • Florida: 1.4 million jobs; $84 billion in annual wages and benefits; and $142 billion in added value to the state’s economy
  • Illinois: 1.1 million jobs; $71 billion in annual wages and benefits; and $121 billion in added value to the state’s economy

 

Wyoming landed at the bottom of the list, with just 42 jobs supported by the private equity industry, $3 billion in annual wages and benefits and $5 billion added to the state’s economy.

A nationwide snapshot

On a broader scale, the nation’s private equity sector directly employed 8.8 million workers throughout the U.S. economy in 2018 who earned $600 billion in wages and benefits and generated $1.1 trillion in economic activity.

“Suppliers to the US private equity sector employed an additional 7.2 million workers throughout the US economy earning $500 billion in wages and benefits, generating $900 billion of value added,” the report said. “The consumer spending of workers of the U.S. private equity sector and the sector’s suppliers employed an additional 10.4 million workers throughout the U.S. economy, earning $600 billion in wages and benefits and generating $1 trillion of value added.”

Source: The Orange County Register

 

Category: Economic News

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