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Farewell Alchemy?

Here is the Real Deals analysis, published today:

The private equity industry has been left reeling following Real Deals’ exclusive disclosure of Jon Moulton’s explosive resignation letter yesterday. “In 31 years in private equity, I’ve never seen anything like it,” said one veteran of the buyout world.

Jon Moulton has sensationally walked out on Alchemy, just a year before his planned retirement. In an email sent to investors lamenting the decline of his firm, the private equity supremo lambasted his former colleagues and called for Alchemy to be wound down.

And unlike the majority of private equity houses, which notoriously take a long time to die, Alchemy’s unusual evergreen fundraising model means its fate already hangs in the balance.

Alchemy investors pledge commitments annually and, according to Jon Moulton, confidence is already beginning to wane.

Speaking to Real Deals less than six months ago, Jon Moulton claimed that “the dynamics of private equity are such that to fail quickly requires special talent.” But he now appears a lot less sure.

In addition to a general slump in the market, Jon Moulton blames team issues, low new deal activity and a weak overall investment performance for draining investor faith in the brand. A number of Alchemy deals – including Floors2Go – were among the earliest casualties of the recession.

The firm’s investment capacity has already plummeted from £400m per annum a few short years ago, Jon Moulton said, to a likely £100m per annum within the next year. He sensationally added that he believes the best course of action now is for the organisation to be disbanded.

“The state that the firm is now in leads to the view that the best solution for investors and the partnership is an early orderly plan termination.”

Whether or not Alchemy heeds Jon Moulton’s calls for an orderly wind down, the firm will struggle to deal with the loss of its charismatic, if controversial founder. Quite apart from any legal key man issues, this is the firm that has evolved in Jon Moulton’s shadow.

In his interview with Real Deals earlier in the year, Jon Moulton himself spoke of the departure of another key Alchemy figure, Martin Bolland, playing down the impact of individuals. “The firm is bigger than any of us,” he said.

“Isn’t it strange that in a public company they get really ratty if someone has more than a 12-month service contract, because that is not good corporate governance, but if anybody leaves a private equity firm it’s a catastrophe. If I was taken ill tomorrow for six months, I have a very talented team and the business would run,” he said.

But once again, Jon Moulton has clearly had a change of heart. Indeed, in his correspondence yesterday he reserved his most venomous comments for former UBS investment banker Dominic Slade, who was appointed managing partner of private equity at the firm two years ago and who was being groomed as his successor.

According to Jon Moulton, Slade wishes to transform Alchemy into a specialist financial services firm. “I do not support this strategy,” he wrote. “It is contrary to the positioning we have created with investors and deal sources, and wastes a spectacular opportunity in our area of perceived greatest strength.”

Jon Moulton went on to say that while Slade was the best available candidate given the situation the firm was in, there remains a question mark over his overall aptitude for the role. “I am afraid that I am unable to recommend that Dominic succeed me. I very much wish I could. I hope he proves me wrong.”

Jon Moulton, who has a huge amount of personal wealth tied up in Alchemy and its investments, concludes his letter with marked regret.

“I feel I owe investors an apology for quite a few things. Together with my partners past and present, I made too many investment and people errors.

“I am the largest carry holder in all investments, and the only remaining significant one in some,” he added. “So I can say with financial sincerity as well as paternal sincerity that I hope things turn out well for Alchemy. It may be that my action today will catalyse a better outcome than would otherwise happen.”

“I would do it again – but better,” he concluded.

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