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Alchemy portfolio draws secondary interest

Jon Moulton’s resignation letter to LPs boldly advises winding down the firm’s non-traditional fund and breaking up the portfolio – a suggestion not lost on rivals and secondary investors.

The resignation Thursday of Alchemy Partners co-founder Jon Moulton has the private equity industry buzzing – with much attention focused on the letter he sent to investors that was widely circulated and subsequently leaked to the press.

But whether or not his exit method and message were well-received or well-intentioned is not the primary focus of discussion for some industry participants – it is whether or not there’s a deal to be had.

Moulton himself noted in his letter to investors that the firm’s financial services investments amount to “a large unrealised portfolio which seems likely to be respectable”. He also suggested winding down the firm’s main fund and breaking up the portfolio.

It’s definitely an opportunity. But it’s not a straight transfer of LP interests, it’s more of a restructuring, brain damage kind of deal.

“They’ve got a very good European credit team, so I wouldn’t be surprised if someone tried to buy that,” noted one long-time industry participant. He added: “His people, his deals – they’re going to go after everything.”

One veteran mid-market GP has already considered such moves.

“I was looking at their website yesterday to see if there’s anything we wanted to buy and was even going to call one of our big investors to say let’s buy the whole portfolio and run it,” acknowledged the GP. “That’s the way one thinks these days. The problem is it’s not the only portfolio around.”

The GP in question has since decided their firm isn’t interested in owning Alchemy’s assets, which include roughly two dozen companies like Westcott Credit Services and QHotels Group.

His people, his deals – they’re going to go after everything.

Should the firm’s “Investment Plan” fund be liquidated and the portfolio broken up, the source said, the Alchemy portfolio companies “might get sold to a secondaries fund, or they could even get sold to Moulton’s distressed fund”.

Two separate European secondaries investors said there could indeed be potential secondaries deals.

“In this case it would be pretty messy because they [Alchemy] have a pretty unusual funding structure where every year they raise a pot of capital,” said one secondaries source. “So each investor may have very different investments across various years … you’d have to find a solution that worked for lots and lot of different people, all of whom had slightly different economic interests across different assets.”

The other issue, the source continued, would be deciding who would manage any assets purchased. “Clearly Moulton is out. Would you bring in some of the previous team who’d left earlier? Are the remaining team the right guys and if so, how would you incentivise them?”

The source continued: “It’s definitely an opportunity. But it’s not a straight transfer of LP interests, it’s more of a restructuring, brain damage kind of deal.”

Alchemy could not be reached for comment.