Jon Moulton interview extract:
Jon Moulton is a veteran of the private equity industry and the chairman of Better Capital. To his peers in the world of finance he needs no introduction. Through this interview, our subscribers can benefit from his unique insight into economy and industry related topics.
BB. How is Better Capital different from other private equity firms? How is it better than other companies that you’ve previously been associated with, both in what it does and how it does it?
JM It’s clearly better because of its name!
What it does is turnarounds – it only does turnarounds, so in that respect, it’s quite different from most private equity firms. We don’t buy companies typically at auctions and win by paying the most – we win deals by being very flexible, by moving very quickly and by taking aggressive action. The firm is set up in the form of a Quoted Limited Partnership which is a unique structure. It is the highest rated private equity company on earth at the moment in terms of its premium-to-net assets.
BB Your stated views about the economic future of this country have not changed since the elections last May and the outlook is still bleak, you say.
JM Probably. I fear things are looking a little grimmer today than they were last year. I think there is a great deal of uncertainty – we’ve got an economy awash with debt and we’re still running up a big deficit despite all the cuts that are being talked about but not yet implemented. That’s the same for the rest of the developed Western world. Interest rates are at ludicrously low levels. If they were to rise we would see an amazing amount of recession-related problems again. It all seems very unstable to me. I think interest rates will break up at some point and when they do, it will hurt.
BB Even if the cuts are implemented, you don’t see any way out?
JM The cuts are not enough. Even if the government gets through all the cuts that it is talking about in the UK, we don’t start to see any quality of government income and spending until 2015, so that’s a long period of adding to an already massive deficit. And that’s on the assumption of steady growth, low interest rates and no international financial crises on the way through. That seems very unlikely to me, so I think the debt will continue to rise. Which is actually something I feel quite strongly about: it’s wrong to be leaving debt for either our kids to pay or default on our creditors or inflate our debt away so that we don’t pay the same value that we took. I would welcome what would probably mean a much tighter and more difficult early period by actually taking through much bigger cuts now. The government might take out £80 billion over the next five years in pieces, in terms of annual savings – to get the budget balance right at once you need to take about £150 billion out.
BB A Wall Street legend quipped in an off the record conversation with us that the so called emerging markets could be equally defined as SUBmerging markets. How do you define emerging markets? Would Eastern Europe be perceived as an emerging market, or a peaked or a distressed one?
JM I think Eastern Europe’s quite interesting because it’s got a mixture of distress – oil industry’s in decay – and a bit of growth, and because the new middle class is driving the market forward through consumption. But really compared to an India or China East-European countries are not emerging markets – they are relatively mature, slower growing markets. The definition can be interpreted however you like, I suppose – emerging markets are pretty much anywhere apart from the UK, as far as the Brits are concerned.