Liberal Spending: How PE Invests In Democratic-Leaning States by Kevin Dowd, PitchBook

Last week, we examined some of the private equity trends in states that voted for Republican candidate Mitt Romney during the past presidential election, using the PitchBook Platform to analyze data since Election Day 2012.

With the Democratic National Convention now underway in Philadelphia, we’ll do the opposite by looking at the states that voted for Barack Obama during 2012 to see how PE investment in blue states differs from investment both in red states and in the U.S. as a whole.

Private equity investors are more than twice as active in blue states as in red states, but that fact seems to be more smoke than fire. As 2010 census figures show, the states that voted for Obama during 2012 have nearly twice the population as states that voted for Romney.

Population share of blue states vs. red states

PE Activity, Liberal Spending, Democratic-Leaning States

Based on 2010 U.S. Census data

On a quarter-by-quarter basis, PE activity in blue states increased fairly steadily from Election Day 2012 until 2Q 2015. Since then, it has declined every quarter, mirroring the trend in U.S. PE as a whole.

PE deal count in blue states

PE Activity, Liberal Spending, Democratic-Leaning States

Source: The PitchBook Platform

But in the past year, the drop in blue-state investment from 2Q 2015 to 2Q 2016 has not been quite as precipitous as the decline in red states: 21.7% in Democratic-leaning locales compared to 27.2% in states that supported Romney. One likely reason for the difference is the energy sector, which red states invest much more heavily in than their blue-state counterparts and which has seen investment decline by 45% YoY.

In fact, just 4.2% of all PE investment in blue states since the past presidential election has been in the energy sector, barely more than the niche materials & resources sector (3.6%) and well behind the 14.5% market share energy deals claim in red states. To compensate, blue states have slightly elevated levels of activity in B2C (20.2% vs. 18.8%), IT (14.4% vs. 13.2%) and healthcare (13.5% vs. 12.8%) compared to the U.S. as a whole.

PE activity by blue state

PE Activity, Liberal Spending, Democratic-Leaning States

Source: The PitchBook Platform

There’s no major surprise in the Democratic state-by-state breakdown. California has been home to nearly 21% of all PE activity since the past presidential election, almost the exact proportion one would expect based on the state’s share of population. New York and Florida follow in second and third, with Illinois and Massachusetts—home to business hubs Chicago and Boston, respectively—completing the top five. The tiniest deal segment belongs to Rhode Island, with 35 deals completed, a mere 0.3% of all blue-state activity.

The most active investor in the entire U.S during the specified time frame, ABRY Partners, is also the busiest investor in blue states, with 158 deals to its name. Same for Audax Group (154) in second place and The Carlyle Group (113) in third. Then things move ever-so-slightly around, however, with Blackstone (102) and KKR (101) flip-flopping their places from the overall U.S. standings.

Interestingly, GTCR, which ranks fourth among all investors red state activity, places just eighth on the list of blue states. Another similar data point stands out a bit farther down the list: Warburg Pincus, which ranks eighth among all firms in red state activity (39 deals) and just 27th in democratic-leaning states (41). Energy-focused firms like Kayne Anderson Capital Advisors and Natural Gas Partners have an even more pronounced red-state tendency, but Warburg Pincus still stands out among firms with a broader focus.

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