Sterling Investment Partners, a private equity firm based in Westport, Conn., this month wrapped up its debut institutional fund at $231 million. Sterling has been actively investing in buyout deals since 1991, but had previously gathered its capital from within the firm.
Sterling’s managing partners, M. William Macey Jr., Douglas Newhouse, Charles Santoro and William Selden, launched the fund in the fourth quarter of 1999 and held a first close in December that year. For the first phase of fund raising, Sterling retained Paine Webber to place the fund, but early in 2000 Paine Webber began making internal adjustments after its acquisition by UBS Warburg, and Sterling, therefore, took a break from fund raising for the first half of that year. The effort resumed in the fall of 2000 with UBS Warburg as the placement agent.
Sterling Investment Partners LP originally targeted $250 million, but Newhouse said that the firm had no reference point for choosing its target so the $231 million raised is considered a success by the firm.
Newhouse credited several contributing elements for the fund’s favorable fund raising. The first of those elements is the firm’s history of co-investing with a select number of institutional investors, which formed strong relationships and now strong limited partners. “[Those investors] all stepped up and backed us in this fund,” said Newhouse. “I think that their backing led other institutions to feel comfortable with Sterling and I think that credibility was extremely important.”
Among the limited partners in Sterling’s fund are Aetna Life Insurance Co., the Government of Bermuda, CIBC World Markets, General Electric Capital Corp., Invesco Private Capital, Landmark Partners, Massachusetts Mutual Life Insurance Co., Mellon Bank, Mutual of Omaha, National City Venture Corp., Northeast Utilities, PPM America Inc., UBS Warburg, University of Richmond, and the fund’s managing partners.
Next, Newhouse credits the firm’s “very good historic track record” and its placement agent. “UBS Warburg represented us and was extremely strong as a placement agent,” said Newhouse. “I think their representation also gave us a tremendous amount of institutional credibility.”
Finally, Newhouse said that the firm’s focus on the middle market worked to its advantage. “Many investors that we talked to thought that the middle market was a much more appropriate arena to be participating in rather than the large $1 billion funds area because of the limited number of opportunities,” he said.
In addition to the $231million raised, the limited partners in the fund are ready and willing to co-invest alongside Sterling Investment Partners LP. With the capital available from co-investors, the fund has the “firepower of a $500 million fund,” said Newhouse. “We anticipate having anywhere from a 1-to-1 or 1-to-2 match for every dollar we put up.”
Sterling plans to invest that firepower over the next two to three years in a variety of service and manufacturing businesses with stable and growing cash flows. Newhouse said finding a solid management team and companies with a sustainable competitive advantage – such as a proprietary product, a low cost manufacturing position, a unique distribution channel or a leading market share – is the key to that end result.