California’s Central Valley: The Next Investment Frontier?

Jan 26 2006 | 7:41pm ET

By Deirdre Brennan

Investors may be talking about India and China as the hottest places to invest, but some experts believe that there is an overlooked goldmine of growth right here in the United States. Peter Weber, co-chair of the Fresno Regional Job Initiative and an investor in The Central Valley Fund, a private equity vehicle which invests exclusively in companies in California’s Central Valley, believes that the region is a fertile place for private equity and venture capital firms to plant their money.

The Central Valley, also known as the San Joaquin Valley, stretches for 450-miles along the state’s interior and includes Fresno, Stockton, Modesto and Bakersfield. The area is growing at a phenomenal pace. New businesses are springing up every day and the housing market is booming. In the 2000 census, there were 3.3 million residents in the Central Valley. This number is expected to reach 4.1 million by 2010, according to statistics from the California Department of Finance.

“If the San Joaquin Valley were its own state, it would have the fourth highest rate of population growth in the country,” said Weber, who added that despite the booming growth, investment and economic development in the region has lagged far behind that of Silicon Valley and other parts of the state. “We have lots of opportunities for the private sector to do well by funding some very attractive ventures,” Weber said. “There have been some very successful businesses that have started up here outside of the agricultural sector, but they have been largely funded by individuals or families.”

Weber said that there is a major effort underway to diversify the economy away from agriculture. Over the next five years, the Fresno Regional Job Initiative aims to create 30,000 new jobs over and above the normal growth rate in sectors outside of farming. Brad Triebsch, a partner at the Davis and Fresno, Calif.- based Gael Partners, which manages the Central Valley Fund, agrees with Weber that the region has great potential, but said that in the past businesses have had and still have a lack of access to investment capital.

“Historically, there have been credit gaps that have existed in the Valley,” he said. He believes that part of this is due to location. There are very few private equity firms actually located in the region, and virtually no venture capital firms. In fact, Triebsch said that his firm is the only private equity firm he knows of that is both located in the Valley and does business there. “Dealflow is sufficient on the coast,” said Triebsch. “No one wants to drive three-and-a-half hours to go to a meeting.”

Carol Whiteside, former mayor of Modesto and current head of the Great Valley Center, a not-for-profit organization working to improve the social and economic fabric of the region, also believes that the area has been overlooked. “Generally, the Valley has been underserved and unrecognized as a place of innovation and investment,” said Whiteside, “but that is changing,” adding that civic leaders are working to grow the economy in high-tech and biotech sectors, among others.

A few of the sectors that Weber, Triebsch and Whiteside see great potential in include renewable energy and water technologies. “We have a number of water technology companies in the area that certainly could benefit from expansion, but we have the opportunity also to create a larger pool of water technology companies,” said Weber. “Water is obviously critical to this valley, but it is also critical to the world. We have the ability to become the ‘Silicon Valley’ of water.”

Whiteside said that industry leaders are also looking at renewable energy as a way to stimulate the economy. The Central Valley has ideal conditions for generating solar energy, with a large number of long, sunny days, and plenty of existing structures on which to mount to solar panels. “We also have excellent opportunities for growing an ethanol industry,” said Weber.

“Bill Gates just put $68 million into Pacific Ethanol, so ethanol is a growth industry. Biomass, bio-diesel, these are all very attractive opportunities for growth in the Valley.”

California’s Red-Headed Stepchild

In addition to private investors overlooking the Central Valley, Weber said the region has been badly neglected by both the federal and the state governments.

“A Congressional research service recently completed a report that shows that per capita federal funding to the San Joaquin Valley of California is 30% below the national average,” said Weber. “So there has been massive under-spending in the Central Valley relative to other areas.”

Weber may be critical of past government efforts to stimulate growth in the region, but he did have kind words for current Governor Arnold Schwarzenegger. “He is the first governor that we have seen in a long time who has paid serious attention to the Valley.”

Earlier this week, Schwarzenegger visited the area and pledged to put $1 billion into revamping Highway 99, which is the main thoroughfare in the San Joaquin Valley and one of the principle north-south corridors for the movement of goods in the state.

Another sign of progress is a recent investment by the state’s largest public pension plan, the $200.9 billion California Public Employees Retirement System, into the Central Valley Fund. The plan has put $10 million with the fund as part of its program to invest in areas outside of Silicon Valley, especially in overlooked areas of the state, according to Brad Pacheco, a spokesman for CalPERS. Weber is pleased that a public pension fund has taken this step, but would like to see more public plans follow suit.

“I’m not making that plea simply because the need is here,” said Weber. “I’m a strong believer that this region is very investment worthy.” 

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