Tailwater Capital has raised more than $800 million toward a $1 billion target for its fourth midstream energy fund, two people with knowledge of the matter told Buyouts.
Tailwater Energy Fund IV, which has a hard cap of $1.1 billion, was launched in the second quarter and held an initial close in July, one of the sources said. It is expected to wrap up in early 2020.
The offering comes a year after the Dallas-based private equity firm closed Tailwater Energy Fund III above a hard cap of $900 million. Fund III also collected $100 million of co-investment capital for one of its platform companies.
Fund IV secured commitments from both new and existing limited partners, one of the sources said, with a strong focus on re-ups. Its predecessor was backed mostly by institutions, such as endowments, foundations and pension plans.
LPs backing Fund IV include New York State Teachers’ Retirement System, which is committing up to $100 million, and Merced County Employees’ Retirement Association, which committed $5 million.
Julie Oakes, a Tailwater spokesperson, declined to comment.
Fund IV’s fundraising pace runs counter to current trends in the energy PE market. Global fundraising has generally been in decline since reaching a recent peak in 2014, when 84 energy funds secured $72 billion, according to PEI Research. Activity hit a low ebb this year, with only six funds raising $6.8 billion, not including Tailwater’s.
“Investors have been increasingly selective about where they’re putting their money in energy PE,” one of the sources said. “It’s really a tale of haves and have-nots.”
Tailwater Energy Fund II generated a net multiple on invested capital of 1.66x and a net IRR of 30.6 percent as of March 2019, according to data from Preqin.
Fund IV will maintain Fund III’s strategy of investing in lower-mid-market midstream energy companies, one of the sources said. Tailwater targets a range of opportunities across the midstream value chain, including gathering, treating and compression, transportation, processing and storage, fractionation and disposal. Deal flow is sourced in major U.S. areas like the Permian Basin in Texas and New Mexico.
The fund already invested in three companies, one of the sources said. They include Triten Energy Partners, a Houston-based investor in downstream infrastructure projects, which last month received a $150 million investment.
Tailwater was founded in 2013 by Managing Partners Jason Downie and Edward Herring, both formerly partners with HM Capital Partners. Other senior team members include Partners David Cecere and Joel Fry.
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