Chris Hoehn-Saric is Senior Managing Director and Co-Founder of Sterling Partners, a US-based private equity firm that operates education businesses as well as investing in them. He talks with The PIE about the company’s 30 year history, what he looks for in an investment and the future of education in the US.
The PIE: Sterling Partners has been operating for about 30 years now. Has your focus on education been a part of the company’s plan from the start?
CHS: We have had a focus on education for the past 25 years. Sterling’s background is unique in that we have experience wearing two different hats. We have been educational entrepreneurs, as I spent my early years running and building education organisations. At the same time, we were also the capital resource for companies. We learned to be better partners to entrepreneurs due to our own operational and entrepreneurial experience.
The PIE: When did you start to see the international element become more important for the education industry?
CHS: It was early. In 1991 we started a business from scratch that was called Prometric – a company that is still around. This was a global business that disrupted the way standardised exams were taken by pioneering technology-enabled testing and assessment. We operated in about 120 countries and the company is now owned by Educational Testing Service, the largest non-profit testing company in the world.
While Prometric provided us a very interesting and transformational business in the area of testing and assessment, it also served as a conduit though which millions of people a year would flow into academic and professional pursuits.
“We learned to be better partners to entrepreneurs due to our own operational and entrepreneurial experience”
As such, we could quite literally watch the flow of people’s lives at key transition moments whether it was going to graduate school or making career choices. It provided this textured look at the entire education landscape on a very broad basis and in many different professional and academic categories. It gave us a perch from which to monitor and assess the international industry.
The PIE: Did having an international perspective change the direction of Sterling Partners?
CHS: At that time we were already building Sylvan Learning, a business focused on tutoring in the United States. Having that bird’s eye view of the worldwide education industry certainly helped us navigate the development of the business.
We also had built a business called Wall Street Institute, which was a source for English instruction for clients around the world, and started outside of the United States. Via these three early Sterling companies, we learned that we needed to cast a worldwide net when looking at education trends and evaluating investment opportunities.
The PIE: What is the relationship between Sterling and Laureate?
CHS: Sterling Partners is an investor in Laureate International Universities. The company was started within Sylvan Learning. In 1997, we acquired a university in Madrid forming the foundation for Laureate. For a period of time Laureate was publicly traded; roughly six years ago we led the process of taking it private. Today, Sterling is one of a number of Laureate shareholders.
The PIE: What do you look for in a potential investment?
CHS: We are looking for organisations that can partner with higher education institutions in areas as diverse as managing outsource functions to joint venturing to build online programs or campus capacity. Most universities have a sense of what needs to happen within their institution for continued growth and success, but have limited financial resources. Therefore, they will look for partners that can create a focused strategy with a sustainable financial base to help further them along.
“Most universities have a sense of what needs to happen within their institution for continued growth and success, but have limited financial resources”
Higher education is currently going through a fairly substantial transformation in the United States, one that I suspect might gradually spread throughout the world. If one looks back 30 years, the participation rate in higher education in the United States was about 40% of the population, now it’s about 70%. We’ve enjoyed a period of dramatic growth in enrolments, but of late growth has slowed down dramatically. Firstly, secondary education institutions have become more expensive in the US, and often not affordable for students. Secondly, the advent of online education over the last decade has caused a shift in the way higher education is consumed.
Given these trends, we think that higher education as we know it is going to change fairly dramatically over the next decade. As such, there are things that universities are going to have to improve, so we’re working to provide those support services for schools and are looking to invest in companies that provide them.
The PIE: Where do you think the US will stand in the international recruitment market in the next five years?
CHS: US schools that have historically been less responsive to international students’ needs are now going to be much more aggressive. The UK and Australia, for a generation or more, have actively embraced the idea of being worldwide providers. While we have a much larger absolute market in the United States, on a percentage basis the US has many fewer international students. Undoubtedly we think that’s going to be an area where you’re going to see a substantial amount of momentum – how do we best serve students worldwide.
The PIE: You’re a principal investor in pathway programme provider Shorelight. What other education institutes with an international presence are you involved with?
“US schools that have historically been less responsive to international students’ needs are now going to be much more aggressive”
CHS: Through Laureate we’ve had a partnership with the University of Liverpool to provide their online programmes. We also operate K-12 schools in places like Switzerland, Latin America and China via Meritas, a company that serves both local and international students. We have many discrete partnerships with traditional universities to assist them in their aspirations for international growth.
The PIE: Are you optimistic about the future of international school growth in particular?
CHS: It’s an area that speaks to internationalisation- with the rise of technology and access to the world, students really want to be citizens of the world. I think we are seeing this as students make their professional and academic choices.
One of the challenges in a lot of growing countries is that they can’t build universities overnight. You can build buildings as fast as you would like, but you can’t build a professoriate, the experience, or the programmes. What we find is whether you’re in Brazil or Turkey, or in India or Malaysia, where you have growing populations that now have the economic means and the aspirations to get a great education, students have to look outside of their home country to obtain it. That’s where there’s the opportunity to be able to connect those dots. This may take the form of bundling local institutions, serving students through online and hybrid programs or assisting student attend international options.
The PIE: Would you say that more employment-driven education is part of the change we’re going to see in the next 10 years?
CHS: Quite frankly, employment driven education has always been around but not labelled as such. There is a group that has always pursued education for the sake of education, which is great, and there will be many institutions that will continue to focus on that. But today, there’s a prominent need to make sure that in addition to providing foundational skills via the basic liberal arts framework, students can connect their education to some sort of career path. There has to be that outcomes-focused mentality to the program.
The PIE: Where does the money come from that you invest with?
CHS: Our investor base consists namely of diversified asset managers, public and private pension funds, foundations, endowments, sovereign wealth funds, and family offices.
The PIE: How do you measure success?
“You can build buildings as fast as you would like, but you can’t build a professoriate, the experience, or the programmes”
CHS: In general we’re not really measured by dividend figures. Firstly, we pride ourselves on investing in businesses that are mission-driven and focused on positive outcomes for patients, students, and customers – which is our priority and how we continue to measure our success. Secondly, we build businesses for the long haul- we’ve been involved with Laureate since 1997. Our ultimate success is derived from creating businesses that are sustainable and successful financially at some future date downstream. Our investors commit to a partnership with us for anywhere between 2-10 years. Their commitment is a long commitment as is ours to try and grow inspiring and successful companies
The PIE: At any one time how many investment projects do you have running?
CHS: We are currently invested in 32 companies across seven institutional funds. In addition to education, we also invest in the healthcare services and business services sectors – all respectively split into thirds of our total business.
The PIE: What’s next for Sterling?
CHS: To some degree more of the same. As mentioned, we have been around for 30 years and have consistently tried to be innovators our respective sectors, identify the next group of trends, ask the questions no one else is asking, and navigate the ever-changing regulatory landscape. We at Sterling are guided by our mission of “inspired growth”, which ties to growing sustainable businesses, staying focused on outcomes for students and customers, and being good partners to companies and investors with which we work.
