Sterling Group collects $820m for Fund III

The Sterling Group has raised $820 million for its third fund that will focus investments on mid-market companies in manufacturing, industrial services and distribution.

Sterling, which raised its second fund with $470 million in 2005, exceeded its initial target for the third fund of $600 million and hit its hard cap, according to Kevin Garland, a partner with the firm.

The firm used Lazard Freres as placement agent for the fundraising.

The firm, founded in 1982, has added 10 new limited partners to its roster, Garland said.  The firm’s investor base includes public and private pensions, fund of funds, financial institutions, foundations and wealthy individuals. Major investors in the third fund include Allianz Capital Partners, Canada Pension Plan Investment Board, Constitution Capital Partners, the Credit Suisse Customized Fund Investment Group and the New York State Teachers’ Retirement System.

Kevin Garland

Sterling’s second fund is almost fully invested, with enough capital for one more investment, Garland said.

The downturn is the perfect environment for the Houston-based firm to succeed, Garland said, because of Sterling’s focus on operational improvements.

“The market is well-positioned for our strategy,” Garland said. “Our operating expertise is that much more valuable, and prices have become more reasonable.”

With the close of Fund III, Sterling has $1.3 billion in committed capital. The firm will qualify this year as one of the 300 largest private equity firms ranked by Private Equity International. The PEI 300 will be published in May.

Sterling during its early days did not raise institutional funds, but only funded acquisitions on a deal by deal basis. The firm raised its first institutional fund in 2001.