Sterling Group beats target on first small-market fund led by ex-CenterOak co-founder

There is a trend in the tough capital raising environment of firms pausing or pulling funds dedicated to ancillary strategies to put the full focus on a firm’s flagship product.

It makes sense, but some firms continue to push through parallel pools outside of the flagship strategy despite constrained LPs who are juggling overexposure to the asset class and dwindling distributions.

Sterling Group is an example. The firm earlier this month reported raising around $637 million for its debut smaller market fund that it calls its Foundation Fund, according to a Form D fundraising document and a source with knowledge of the firm.

The fund, which launched into the market last year, is closed, beating its $500 million target, according to Lucas Cutler, partner at Sterling Group who leads the Foundation fund. That means Sterling Group was raising as the market turned, and potentially was able to secure commitments before the market really slowed this year.

Sterling’s Foundation fund targets transactions of $100 million to $200 million, according to the marketing document. Its focus, like the flagship fund, includes manufacturing, distribution and industrial and business services.

The Foundation fund also announced its first investment this month, partnering with John Adams, former CEO of Full Speed Automotive, in establishing Premier Tire & Service, a tire and auto services provider platform.

“We believe that it is a particularly interesting time to be building businesses in the industrial and services sectors given a number of macro tailwinds that we expect in the industry over the next few years,” Cutler said in a statement to Buyouts. Examples include  “an increased emphasis on nearshoring supply chain capabilities post COVID resulting in continued investment in the US manufacturing and distribution sectors and a massive need for investment and development in aging US infrastructure.”

Cutler joined the firm in 2021 after helping form CenterOak Partners, which was a spinout from Brazos Partners. He formed the firm alongside Randall Fojtasek, co-founder of Brazos, Michael Salim and Jason Sutherland.

Earlier this year, Sterling Group hired Luke Bateman as a managing director on the Foundation team. Bateman joined from Insight Equity, where he was most recently a partner. Other members of the Foundation team include Steven Hirsch, director; Jared Bell, vice president; and Bryan Tisdale, vice president.

The firm managed about $6 billion as of December 31, 2022, according to Sterling Group’s Form ADV. It closed its fifth flagship pool on $2 billion in 2020. The firm also raises credit funds.

While Sterling appears to have raised its parallel fund, other GPs have been backing off strategies outside their primary focuses. TA Associates, for example, decided to pull fundraising on its third Select Opportunities fund, which had been targeting $1.5 billion, to focus on raising its 16th flagship pool, which could close on as much as $16 billion, sources told Buyouts in previous interviews.

Firms are facing “LP fatigue, which is impacting even GPs with strong past performance. There’s fatigue because ‘Hey, you guys are back, we have a lot of NAV with you and we can only do so much,’” a family office LP told Buyouts in a prior interview.

Update: This report was updated with additional information from Sterling Group about the Foundation fund and a quote from Lucas Cutler.