Drum Capital seeks to identify “best-in-class” fund managers with consistent track records of special situation investing, as well as compelling direct equity and co-investments in operating companies. Value investing typically encompasses investments in the equity of companies that are facing financial, macro-economic or operational challenges and are often likely to need significant operational improvements.
Special situation investment strategies are diverse and span varying levels of control, capital structure participation and liquidity. Below are a select group of strategies and disciplines that exist in today’s special situation investment environment:
- Turnarounds / Underperforming assets
- Broken sale processes
- Complex operational challenges
- Structured debt & equity
Since market opportunities are constantly changing, our dynamic allocation process factors in historic and current performance and gives strong consideration to near and long-term market forecasts. Drum Capital believes that the more absolute return nature of value-oriented investing, compared to buyout and venture capital investing, can provide significant diversification to investor’s private equity portfolios.
Lower Middle Market Opportunity
Drum Capital believes that the lower middle market for special situation investments presents an attractive opportunity set, particularly as compared to traditional large-cap and mega-cap investment managers. While larger capitalization funds represent the majority of private equity capital raised in the institutional marketplace, they participate in only a fraction of the number of special situation deals closed each year. Typically, larger transactions are highly brokered and highly competitive. By contrast, Drum Capital believes the lower middle market is far less efficient, with thousands of transactions per year, allowing skilled investment managers greater potential for excess returns.
Drum Capital’s team is dedicated to identifying investments likely to demonstrate consistency of performance through various economic cycles. Our approach seeks to provide core exposure to special situations investing, balancing the need to manage risk, without diluting performance. We have long-term relationships with leaders in the industry, which we leverage to gain access to new and existing funds and co-investment opportunities. Drum Capital maintains an active database of more than 500 special situation and turnaround focused specialty firms and, through our programs, we invest in vehicles that opportunistically allocate across securities and assets as market opportunities arise.
Drum Capital typically reviews well over $1B of co-investment and direct equity investment opportunities annually and usually invests in less than 5% of doable deal flow. Opportunities are sourced from sponsors with a record of strong performance and through long-tenured relationships across the special situation sector. Proprietary, independent research is the backbone of our investment process, which is driven by a fundamental bottom’s up approach to analyzing each asset and investment opportunity.