Drum Capital Lining Up First Close For Distressed F-o-F

Firm: Drum Capital Management

Fund: Drum Special Situation Partners III LP

Target: $500 million

Amount Raised at First Close: $150 million

Drum Capital Management expects to hold a first close on about $150 million for its third distressed debt and turnaround fund of funds this month, according to Scott Vollmer, managing director. The Stamford, Conn.-based firm began fundraising for Drum Special Situation Partners III LP in the fourth quarter of 2008. The pool has a $500 million target.

With backing from U.S.-based pension funds, foundations and endowments, the firm plans to invest 80 percent to 85 percent of its capital in the United States. The bulk of the rest is to be deployed in Canada and Western Europe with a little in South Korea, Japan and Australia.

“We are very skeptical on Asia, and we continue to mull [investments] through Europe,” Vollmer told Buyouts. “Right now, the problems in Europe are pending. They really haven’t hit in force yet. It’s something we’ll continue to look at through 2009 and 2010.”

Fund III is expected to contain about 18 underlying partnership investments. Between 15 percent and 20 percent of the vehicle is earmarked for co-investments. Vollmer said the firm will be on the lookout for troubled companies that are basically good businesses dealing with cash flow problems.

“Refinancing has been a huge problem in the capital markets in 2008, and it will only get worse in 2009 and 2010,” he said. With regional banks basically out of business, Vollmer believes it’s an opportune time for his firm to put capital to work.

Drum Capital tracks around 400 fund managers within the distressed and turnaround sectors globally. Its team consists of 12 professionals, although that number may grow to as high as 18 in the first quarter, said Vollmer. Drum Capital augmented its investment team in mid-2008 with the hiring of Edwin Camson as a managing director to oversee all short-term special situation investments. Camson previously served as a senior member at Bennett Management Corp.

The firm raised about $450 million for its second fund, which closed in late 2007 after falling short of a $500 million target, and having extended its fundraising deadline by almost a year. Fund II is 90 percent committed. Champlain Advisors was the placement agent on that pool, and backers included the Nevada System of Higher Education; the Superannuation Funds Management Corp. of South Australia; and the University of California, Irvine Foundation.

Drum Capital was founded in 2005 to manage sector-focused funds of funds focusing on distressed debt, turnaround and workout opportunities.