Jon Moulton, the veteran private equity boss, was a vocal supporter of leaving the European Union in the run-up to the UK’s in-out referendum on EU membership.
Now, though, he fears Brexit could have a devastating impact on the UK’s financial services sector when the country leaves its transitional membership of the EU in just nine weeks with no trade deal in sight.
“If we end up with an acrimonious departure from the EU then we run a real risk of finding non-equivalence and barriers to trade from the UK into Europe, which would seriously hurt financial services businesses,” said the outspoken financier, who turned 70 last week.
“There’s not a thing we can do about it, we’re just observers really, and it’s anybody’s guess as to how acrimonious or otherwise that departure will be,” he told FN’s sister-publication Private Equity News in a phone call from his home in Guernsey.
Any access the UK retains to sell financial services and attract investors in the EU from January is likely to hinge on whether EU regulators are, under the so-called equivalence model, prepared to regard UK financial regulation as broadly in line with regulation in the EU27.
But, as trade negotiations between the UK and the EU reach their end game, there is currently “no evidence whatsoever of reaching an agreement on equivalence”, Moulton says.
He now believes that the UK’s hugely important financial services industry – which accounts for 7% of GDP – ought to have been more vociferous in lobbying the UK government for the sector to be included in trade negotiations with the EU.
“There was certainly more scope for doing more,” he says. “The financial organisations in this country were not a powerful, coherent block throughout, and, while some did speak out about the dangers of getting outside the EU, some of them see opportunity too.”
He sees some potential benefits to Brexit for the private equity industry in terms of cutting red tape imposed by the EU since the global financial crisis.
He is particularly critical of the Markets in Financial Instruments Directive II (MiFID II), the General Data Protection Regulation and the Alternative Investment Fund Manager Directive (AIFMD), which he says has “caused much grief for the industry and an amazing amount of virtually pointless activity”.
But, he warns, even outside the EU, UK fund houses will likely have to continue to follow AIFMD and other EU rules if they want to continue to do business in Europe. “The outcome will inevitably be more tedious and very cost-ineffective compliance,” he says.
Moulton also believes that UK professional services companies, such as lawyers and accountants, could lose as much as £250m a year for the services they provide to the private equity industry if, as seems, likely, dealmaking moves increasingly from London to other financial centres in the EU.
Moulton, whose wealth is put at £184m by The Sunday Times Rich List, made his name as a turnaround specialist in the eighties and nineties and has been described as the public face of private equity in the UK.
He famously quit his job as head of Alchemy Partners, the private equity firm he had co-founded, in 2009 following a highly publicised bust-up with his partners over investment strategies and his resignation letter was printed in a daily newspaper.
After vowing to “do it again, but better” he then founded Better Capital. But his new company’s investments over the past decade have not fared well.
In 2014 he was branded a “Grinch” by the tabloid press after putting parcel delivery company City Link into administration during the Christmas festive season. And in 2017 fashion chain Jaeger, also owned by Better Capital, collapsed.
The coronavirus pandemic this year was the last straw and Better Capital’s two turnaround funds, launched in 2009 and 2012, were recently de-listed. “The costs of maintaining a listing were disproportionate to the value of the assets, no more or less than that,” he says.
“The first fund is turning out respectable: it’s not great but at least it’s not in the bottom decile. The second fund has been really very disappointing and a large number of mistakes were made in a difficult environment.
“There is no use my pretending otherwise, and it’s a sense of duty rather than enrichment that has actually motivated me to try and sort it all out as best I can.”
Asked whether he regrets setting up Better Capital, Moulton says: “If I’d had perfect vision of where I was going, I would probably not have done it but I take the old-fashioned approach really: I’ve started and so I’ll finish.”
Assets under management in the first vehicle are now valued at about £40m and there is around £20m in the second.
One of the two remaining large investments in the 2012 fund was in Spot, one of Britain’s biggest office supplies wholesalers, which Moulton says lost half of its revenues as soon as the lockdown started in March. He now believes the company “will make some recovery”.
The second remaining investment was in Everest Double Glazing which, says Moulton, “walked into an inability to operate its business during the very serious lockdown days and managed to run out of money without even having any bank debt”.
Everest, which Better Capital bought back for a reduced price after it went into administration, is now trading reasonably well, says Moulton, as demand for home improvements has held up during the pandemic.
“With Everest we will realise as much as we can on it. The likely outcome is that three years forward or so we’ll sell it on.”
Moulton now plans to retire from private equity although a liquidation of the two Better Capital funds “might be two or three years away, it might be four or five.”
As he enters his eighth decade, the father-of-two expects to have more spare time to spend on hobbies such as playing chess, bridge and walking.
“I’ve reached a goodly age and my objectives are quite limited: keeping fit and enjoying life,” he says. “There is no point in being heroic about it.”
He nevertheless plans to continue working for his London-based family office, Perscitus, which manages a large venture capital and buyout portfolio.
“The family office invests in small and medium companies at all stages of their development and positions, and I will continue to do that. I enjoy it,” he says.
Looking back on his more than 40-year career, Moulton cites the unsuccessful attempt by Alchemy Partners to buy Rover Cars from BMW in 2000 as a career highlight that would have led to the Longbridge car plant being owned by Alchemy.
“Well, we didn’t do it of course, we never bought the company but we still won Deal of the Year for a deal that didn’t happen,” he says.
“That got a level of publicity I’ve never seen before or since, so it was very memorable from that viewpoint.”
His most successful turnaround, Moulton says, was the buyout of Parker Pens, which he led in 1986 while working at Schroder Ventures. The company was seen as having drifted away from its core mission of making high-quality fountain pens and Moulton’s management team reversed this.
“When we bought the company, it was losing something like £20m a year,” he says. “When we sold it seven years later it was making £40m-odd a year.”
Another strand to Moulton’s varied career has been a commitment to the drugs and pharmaceuticals sector.
The Lancaster University chemistry graduate’s interest in medical science stems back to his childhood in Stoke-on-Trent where he suffered a number of serious and rare medical conditions, including tuberculosis, aplastic anaemia and amoebic dysentery.
He is a trustee of the UK Stem Cell Foundation and his charitable foundation is funding more than 100 clinical trials, including five drugs to treat Covid.
At an early stage in the pandemic when access to government money was scarce, he also helped to fund a Covid vaccine being developed by Imperial College, London.
The private equity industry has become “a very different animal” from when he started in the eighties, when making money was “in many ways, very easy”.
“The availability of opportunities was great, the competition was slight and you could get large quantities of leverage and buy companies very cheaply in a fast inflating environment,” he recalls wistfully.
“It was of, course, in those days essentially totally unregulated, and not much worse for it, I think. The industry is now very much mainstream: it has become a substantial owner of assets and it has a very large share of the M&A market.”
Although he admits that “some terrible things have been done” by private equity, particularly by short-term investors, he remains an evangelist for the sector and its potential for societal good.
“Obviously, it does good when it’s saving failing companies,” he says.
“It also does something good when it funds early stage companies that are ending up as major benefactors to people in the drug industries.”
Of his own blend of private equity and philanthropy (his charitable giving amounts to some £40m over the last decade) he is self-effacing. “My ill-gotten gains are going to do some good,” he jokes.
CV: Jon Moulton
Born: October 15, 1950
Education: BSc chemistry, Lancaster University
2009 to present: Chair, Better Capital
1997-2009: Co-founder and managing partner, Alchemy Partners
1994-97: Director in charge of leveraged buyouts, Apax Partners
1985-94: Founder and managing partner, Schroder Ventures
1981-85: Managing director of LBOs and venture capital, Citicorp Venture Capital, London
1980-81: LBOs and venture capital, Citicorp Venture Capital
1972-80: Manager of M&A group, Coopers & Lybrand
Salary: not disclosed
This article was published by Private Equity News.