Sterling Private Investments Inc. is beginning to reap the benefits of its decision last year to join Cleveland’s National City Corp.

The asset management and investment advisory firm this month closed a $25 million fund of funds called PEF Investments LLC. It will invest in private investment funds that specialize in buyouts of private companies.

Sterling attracted more than twice as much capital and nearly three times as many investors for the latest fund as it did for the last fund it launched before National City bought it.

Raising capital isn’t as hard as it used to be for Sterling, which manages $100 million and 10 private equity funds on behalf of wealthy individuals and families. National City’s purchase of Sterling in April 1998 gave the Pepper Pike, Ohio, firm access to a wealth of new client relationships, says David Robertson, vice president of Sterling.

National City’s private client group, which manages $34 billion, and its brokerage unit, NatCity Investments, both regularly refer potential investors to Sterling.

“I’d like to say it was all us, but it wasn’t,” says Mr. Robertson, who expects the new fund to generate a return of “at least 30%” a year.

Picks 4 buyout biggies

Sterling already has committed $19.5 million of the new fund’s capital with four private buyout firms. They are Clayton Dubilier & Rice Inc. of New York ($10 million), American Industrial Partners of San Francisco ($4 million), Riverside Co. of Cleveland ($3 million) and Hicks Muse Tate & Furst Inc. of Dallas ($2.5 million).

All firms have posted average annual returns of at least 40% over the past five years, Mr. Robertson says.

Mr. Robertson credited his new colleagues at National City with providing many of the contacts at these firms. Sterling’s five-member investment committee includes Herbert Martens Jr., chairman and CEO of NatCity Investments, and William Schecter, president of National City Capital, a private equity arm of National City that has invested $400 million in private equity funds and companies nationwide.

“These guys know who is doing what and where the deals are getting done,” Mr. Robertson says. “Could I have done this without them? Probably not.”

The bulk of the firms included in Sterling’s new fund already had relationships with National City Capital, which gave Sterling added leverage in its negotiations, Mr. Schecter says.

“When a private fund looks at (Sterling) and sees that it’s backed by a major bank, that gives them instant leverage,” he says. “They instantly know we’re in for the long term.”

Crain News Service