Tailwater Capital LLC is a highly specialized middle-market private-equity firm focused exclusively on the energy sector. Edward Herring and Jason Downie, the firm’s two managing partners, co-founded Tailwater Capital in 2013 to be the preferred source of private-equity capital for oil and gas entrepreneurs. Today, Tailwater manages $2.1 billion in committed capital deployed across five funds targeting midstream and non-operated working interest upstream opportunities.

With a well-established track record consisting of more than 65 transactions in the upstream and midstream sectors worth $16.6 billion, Tailwater believes that alignment of interests and a long-term partnership approach are two essential ingredients for creating value.

“Edward and I co-founded Tailwater in January 2013 after focusing on energy investing at a large generalist private-equity firm together, and have been working together for over 19 years. We learned that a ‘one-size-fits-all’ approach to private equity often risks falling short of achieving goals, particularly in the dynamic energy sector. As a result, we take the time to understand what is important to the management team, and structure our investments to address their needs while providing our investors exceptional returns. Aligning interests from the start eliminates friction, makes for a more motivated team and builds value for everyone. That makes Tailwater Capital a preferred source of private-equity capital for leading energy entrepreneurs,” said Downie.

Tailwater is actively funding both midstream and upstream opportunities. The firm’s midstream strategy is straightforward, concentrated on teams with projects for de-bottlenecking areas where production growth is out-pacing the existing infrastructure. If operators are expected to continue drilling in an area at prevailing commodity prices, then the chances are high there will be a long-term need for midstream solutions.

Edward Herring described Tailwater’s strategy this way: “Some of our best investments have come to us at a very early stage, and we don’t want to say ‘no’ to a good idea just because it doesn’t fit a certain template. If a team is in the right basin and their project can generate good economic returns with an interesting value proposition, then we want to look at it. Oftentimes, we find that if one producer has a problem that’s not being met by a large MLP or a service provider, then other producers are probably having the same problem. As a result, what originally looked like a small midstream project can become a large business if you are creative.”

By design, Tailwater has a higher concentration limit, meaning it can invest in multiple projects with the same team. Instead of funding six teams with six projects, Tailwater has the ability to cultivate multiple projects behind the same team and feels that flexibility can lead to better returns for investors and management teams.

“With this approach, our teams can be collaborative and not feel like they are competing with Tailwater’s other portfolio companies. That’s different than other shops, and it improves our ability to establish alignment from the beginning,” explained Herring. “We view trust, transparency and partner-ship as core to all of our deals. You put all that together, and it’s a win-win for Tailwater, our management partners and our investors.”

On the upstream side, Tailwater prefers to invest in non-operated working interests. The firm can manage risk by building a diversified portfolio of interests while maintaining investment selectivity and flexibility along the way. 

“This two-pronged strategy—midstream and upstream—provides our investors with complementary strategies and provides us a strong and