Goodbye and good luck

At a BVCA dinner in early 2008, Lucy Neville-Rolfe, a member of the board at UK supermarket giant Tesco, gave a speech. What her company and private equity had in common, she said, was that people loved to hate both. But there was a difference too: “Tesco hasn’t been attacked by Jon Moulton.”

The audience roared. For here was a private equity man that even some private equity people loved to hate. Many in the crowd had worked for firms that for a long time had been at the receiving end of Moulton’s ever more frequent, and increasingly fierce, criticism of the many things he felt private equity was getting wrong. Some agreed with the stance he had taken. Others didn’t.

In the months that followed, the market crisis intensified and the industry’s apparent problems worsened. Moulton became even more outspoken, lambasting private equity’s reckless deal-making and excessive use of leverage during the boom. His own public profile kept growing, while that of Alchemy, the investment firm he founded in 1997, appeared to shrink. Investment-related news involving the group was thin on the ground.

Now the man who gleefully stepped into the public spotlight in 2000 by bidding for UK car maker Rover as it entered its death throes, has walked out on Alchemy in spectacular fashion. His letter to investors explaining his motives, widely available on the internet today, is bound to become an industry classic, what with the damnation of his former colleagues’ abilities and track record, the call for the firm to be wound down, expressions of personal regrets and an apology to investors. Suffice it to say, the private equity industry – and tellingly, a far broader audience courtesy of the letter's widespread distribution – has seen nothing like it.

The departure seems all the more poignant because Moulton’s scheduled retirement was just over a year away. Tensions within the partnership must have been intense to say the least if he couldn’t see a way to last until then, let alone try to fix its problems. But maybe Moulton was always unlikely to simply retire. “Jon loves drama,” says one market insider. “Was he ever going to go quietly?”

The investor letter certainly supports that view. Today, as the industry digests the news, the question of Moulton’s legacy arises. Many practitioners agree that he was right to question some of the racier investment practices that became commonplace during the boom, and that his challenges to the industry were constructive and never without entertainment value.

But others cite the circumstances of his exit from Alchemy as evidence that he has long been too focused on a personal agenda – to the detriment of the firm, but also of the industry at large. Tone and substance of the departure letter speak of a man finding it hard to resolve issues through compromise, they say. And, they add, for an industry that critics describe as having been overly shaped by big personalities, Moulton's public declarations made it look as though the industry was still dominated by individuals rather than institutions.

As one London-based insider put it to PEO today: “The irony is he’s been a force for good for private equity. When the industry had to get its act together about articulating a case for itself, he was one of the ones to get up and lead the charge. But [the letter] just doesn’t strike the right tone for private equity, because it’s all about an individual. Alchemy has always been a Jon Moulton-led firm, that’s the difference. There are very few firms now that aren’t brand-led.”

The impact of this latest chapter in the Moulton story will be a talking point in private equity for some time yet. It probably isn’t the final one. As Moulton wrote in his LP letter: “I expect to be in further touch shortly.” We’d welcome that. Among Moulton’s many qualities are a sharp intellect and excellent communication skills. The Alchemy departure seems a low point, but if he can find a way to make another contribution to private equity going forward, the industry as a whole may well benefit. Though not everyone will thank him for it then – let alone now.