Sterling Polishes Off Debut Fund

Westport, Conn.-based Sterling Investment Partners this month wrapped up its debut institutional fund with $231 million worth of commitments. Sterling has been actively investing in buyout deals since 1991, but had previously gathered its capital deal by deal.

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 of that year. For the first phase of fundraising, Sterling retained Paine Webber to place the fund, but early in 2000 Paine Webber began making internal adjustments after it was acquired by UBS Warburg. Thus, Sterling took a break from fundraising for the first half of 2000, but resumed its efforts in the fall with UBS Warburg on board as the placement agent.

Sterling Investment Partners LP originally targeted $250 million, but Newhouse said that since the firm had no reference point for choosing its target, it is not disappointed by the $231 million close.

Newhouse attributed the firm’s favorable fund-raising experience to its long history of strong co-investment relationships with a select number of institutional investors who are now its limited partners.

“[Those investors] all stepped up and backed us in this fund,” Newhouse said. “I think that their backing led other institutions to feel comfortable with Sterling and I think that credibility was extremely important.”

Sterling’s prestigious LP roster includes 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.

Newhouse also credited the firm’s “very good historic track record” and its placement agent.

“UBS Warburg represented us and was extremely strong as a placement agent,” he said. “I think their representation also gave us a tremendous amount of institutional credibility.”

The firm’s middle-market focus worked to its advantage as well.

“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, because of the limited number of opportunities,” Newhouse explained.

Strength in Numbers

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,” Newhouse said. “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 capital 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.

Christa Fanelli can be contacted