Private equity industry blamed for financial collapse

by Kate Pritchard - Tuesday, 30th September 2008 -

The financial system is in meltdown after the US Congress dramatically rejected a $700bn plan to rescue the paralysed banks. “This is the worst economic situation that we’ve lived through,” says Jon Moulton, founder of Alchemy Partners.

“The private equity industry has taken a bashing in the press over the past year because of the excess of large, leveraged buy-outs. People assume we’re responsible for the collapse of the world as we know it. And over the next few months, that publicity will get worse.”

Jon Moulton shot to prominence as the potential saviour of car maker, Rover, and is now one of the most recognisable faces of the private equity industry. The veteran investor is one of a tiny number of leading financiers in the UK to have launched two private equity firms (Permira and Alchemy) in the past 22 years.

Moulton has stood out in the industry for being a straight talker. “We’ve always been open with the press, sometimes to the great upset of our rivals. But it has served us much better than pretending not to know what we’re paid or how we’re taxed. We’ll answer any question that’s put to us. I guess you could call that ‘transparency’.

"The other form of transparency is producing 48 pages of drivel that nobody reads."

Moulton reckons entrepreneurs will have a rough ride over the coming year. “Funding is harder all round. Survival has taken over from prosperity. Somebody coming to the market with a long list of risks is, in the current marketplace, very unlikely to get funding.”

So which sectors are the safest bet? “Anything wrapped around our glorious government is likely to be fairly safe because it spends pretty well regardless. Basic food distribution is a fairly safe sort of game, too.

“But it’s not exactly a cheerful picture. Negative returns are the expectation at the moment. The number of sales has plummeted. Sellers haven’t got their minds around the fact that their businesses are worth 30 per cent less than last year.”