Moulton leaves Alchemy over lack of chemistry

LONDON (Reuters) - Jon Moulton's stinging rebuke to fellow partners on leaving private equity firm Alchemy is as much a sign of his antagonistic character as a symbol of the make-or-break choices the industry is facing.

In a scathing letter to investors, the 58-year old private equity veteran sharply criticized his successor Dominic Slade, who he said wanted to convert the firm's business to do more deals in the financial services industry.

The harsh tone of his words characterizes a man recognized for his intellect but notorious for a tendency to rattle cages, even when there may be no need to do so.

"If you listen to Jon, he is analytical, intelligent, likes to be provocative and then he almost invariably goes a step beyond it where you think that is slightly embarrassing," said one senior industry figure on condition of anonymity.

"I have heard him speak where he gets people's attention, engages them, then he says something outrageous and you think, that's probably not right. It's cringe-inducing."

A spokesman for Alchemy declined to comment on Moulton's letter. He also would not give details of any talks with investors over the last 24 hours, nor whether the resignation had prompted any redemption requests.

Moulton did not respond to calls.

DEAL DEARTH

Moulton built up a formidable reputation as a dealmaker through his long history in the industry -- he also founded Permira PERM.UL, another well-known UK buyout house -- as well as through frequent appearances on television.

But the credit crunch has hit the industry hard. There is a lack of deals because banks refuse to lend buyout houses money, while many companies that have been bought out are faltering due to falling revenue and heavy debt positions.

The industry is sitting on a huge pile of unused cash and has been branching out into areas such as distressed debt investing, where it puts money into heavily discounted debt instruments in the hope they will recover later.

Moulton in his letter said he did not support newcomer Slade's plans to convert Alchemy into a "specialist financial services firm." Alchemy has not said this is its plan and a spokesman declined to comment.

Moulton is known for his bearish views on the industry's prospects, warning earlier this year that close to a third of the private equity industry's mid-market portfolio companies could fail.

Alchemy has held off investing in companies since autumn 2008.

JOB CUTS

In a career taking in stints at the venture capital divisions of Citicorp (C.N) and Schroders (SDR.L), Moulton's profile increased during a failed attempt to rescue car maker Rover at the turn of the century.

Never afraid to make tough decisions, bespectacled Moulton proposed a deal to focus on the MG sports car brand which would have sparked major job cuts at the Longbridge factory in Birmingham, central England, and helped stoke a political firestorm.

BMW ended up selling Rover for a symbolic 10 pounds to a rival consortium of businessmen, but the group's initially popular strategy of remaining a mass-market manufacturer failed and it was forced into administration five years later with the loss of 6,000 jobs.

Moulton also showed prescience in the credit crisis. Back in 2006 he told UK daily the Independent: "We're looking at an overheated market right now and we'll see some spectacular falls in the next year or two. It's just a matter of time."

Many in the industry remain his admirers.

"He is a highly original thinker and he had some very creative thoughts about private equity generally which added a lot of value to the industry," said Richard Laing, chief executive of private equity group CDC Partners.

"I have been an admirer of what he's done for private equity and I hope he still stays involved," Laing said.

In the meantime Moulton's letter serves as a controversial epitaph for his career at Alchemy.

"As I read the letter yesterday afternoon, I could feel my jaw dropping because you just think it is so carefully calculated to (cause) maximum damage," the senior industry figure said.

(Editing by Douwe Miedema and David Holmes)