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With sluggish deal activity and a troubled economy, David Giampaolo, chief executive of Pi Capital, doesn't have much hope for 2010. James Harris reports

Whispers of recovery are given short shrift by David Giampaolo, chief executive of private equity network Pi Capital, who says: 'There will be a day of reckoning and I think it's coming soon. People's assumptions have become too optimistic in too short a period of time – we're nowhere near back to normal.'

Giampaolo points out that private equity deal flow is at a 25-year low, and he sees any recovery being slow and painful. Pi Capital's last investment was £3.9 million into manufacturing business Applied Killervolts in June 2007. Before the credit crunch, the firm made an average of four investments a year.

'In the last two years, I've been scouring the market for new investments but I haven't seen anything that I like for the right price,' says Giampaolo.

For a private equity firm, Pi Capital has an unusual model. It identifies an investment opportunity and sends a one page circular to its 300 members, all of whom are high net worth individuals, inviting them to invest their own money. According to Giampaolo, the average number that participates in any investment is between 25 and 45.  

A typical investment is between £1 million and £5 million and Pi tends to act as co-investor alongside larger houses. The firm likes to cast its net as widely as possible: 'We're a generalist because we rely on the specialist investment nous of whoever is leading the investment.  In the last four or five years, we've invested in bingo halls, furniture retailing, wind farms, mobile security and river boat transport.'
 
Biding his time

Giampaolo claims the firm's lack of deal activity is a good thing: 'Owing to the type of deals we get involved in, had we made any investments, they would be underwater now. Most investors wouldn't have made any investments in 2007 and 2008 if they could turn back the clock.'

Although the firm hasn't sealed any deals of late, last year it raised money for Risk Capital Partners, a £75 million venture fund co-founded by Channel 4 chairman Luke Johnson.

Says Giampaolo: 'To this day, they haven't done a single investment. Even though we're paying fees, I couldn't be happier. If Luke Johnson hasn't found anything they want to invest in, that can only be because there isn't anything out there for them.'

Predictably, finance remains a major sticking point: 'Banks that received bail-out money are materially below lending targets and the cost of lending is not getting any lower. On the one hand, banks are expected to get their house in order and strengthen their balance sheets, but on the other hand, they are instructed to lend.'

Despite encouraging signs in capital markets, Giampaolo isn't convinced: 'Stock markets are forward-looking beasts and I believe the assumptions are too bullish. If I'm right, stock markets will tumble.'

According to Giampaolo, there's more misery to come: 'There will be more bankruptcies in the next couple of months, unemployment will increase, taxes are going to bite more and the [next] government is going to have to make cuts. I have a lot of money invested in the UK, so I hope I'm wrong.'

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