Sterling Partners closed its Fund IV earlier this year. What investments have you made since activating the fund?
We have already made three investments from Fund IV. One investment was in Desert NDT, which provides non-destructive testing services to oil and gas providers to ensure the safe installation and operation of new gathering pipelines and other midstream oil and gas infrastructure. We’ve also made an investment in a company called PlattForm, which provides comprehensive enrollment and marketing resources to the higher education industry, including both career colleges and traditional universities. The third is Pingora Asset Management, which is an investment in the mortgage servicing rights space.
Why is education such an attractive sector for Sterling?
We have been committed to education since the mid-80s because we believe that it’s a very attractive space throughout market conditions. There are viable and lucrative opportunities to improve the existing system, support innovation in and around that system and also have a societal impact. That’s really a unique trifecta. We’re also drawn towards mission-driven businesses and education is ripe with those types of businesses.
How have for-profit education companies and online education companies changed the sector?
For-profit education companies were disruptive because they introduced more innovation into the system. They are nimble and have had good access to capital. What you’re seeing today, however, is a shift among for-profit institutions from thinking purely about volume, meaning enrollment of students, to the students’ ability to succeed in and stay in a programme. With online education, it is disruptive because of access, portability and because it provides institutions with an alternate means of revenue versus a more expensive strictly bricks and mortar approach.
What impact have education-related regulatory issues had on your investment thesis?
A couple of years ago we took off a pretty significant period of time from direct investing into the education space because of some of the regulatory uncertainties and instead we really focused on the existing portfolio companies to help them navigate that uncertainty. The 30 years of experience we have had allowed us to have that discipline to step back and say ‘this is a better time to be focusing in-house than to be going out and finding new opportunities’. And it served us well because coming out of that uncertainty we were in a good position to exit some of those businesses at a premium.
What needs to happen to drive future growth in the education sector?
We need to continue to focus on quality outcomes and get away from just pure volume plays. It’s also very important to have long-term oriented strategies and regulatory schemes to support a focus on quality versus knee-jerk, short term reactions to potential market challenges or crises.