David Giampaolo, chief executive of Pi Capital, an innovative private equity club, has not made a single investment in the past two years. But there is one venture he would be desperate to support – a private bank that did not “suck”.

“All private banks suck. Their business model means their interests are diametrically opposed to yours. They are trying to get into your trousers to get money out.

“They don’t have the balls to say ‘this year you should do nothing, even though we won’t earn a penny’,” says Mr Giampaolo who reports a constant catalogue of complaints about private banks from his 300 wealthy members.

“I guarantee you in the next couple of years there will be a couple of banks started with a different model and they will get huge amounts of money. I want to meet people who want to do that. I have 300 members who would be interested, both as clients and investors.”

In 2002, when Mr Giampaolo bought London-based Pi, it was a straightforward private equity house.

He promptly added the investment club side, allowing Pi to tap into the combined knowledge of its network of high achievers, who include Sir Stuart Rose, chief executive of Marks and Spencer; Sir Martin Sorrell, CEO of WPP; Brent Hoberman, chairman of Lastminute.com; and Jon Moulton, the founder of Alchemy Partners who last month launched Better Capital, his new private equity vehicle.

The unique set-up – members pay £4,000 ($6,400, €4,400) a year seemingly as much for the networking opportunities and events as the chance to invest – indicates how sparingly mainstream private equity houses might invest if there was no pressure to do deals.

In the past two years Pi has been invited to participate as a co-investor in about 500 deals, Mr Giampaolo says. Some 90 per cent were outside Pi’s remit, because of their size, geographical location or providence. The remaining 50 or so were rejected after Pi ran them past a panel of its members with relevant sector experience.

“They say ‘don’t touch it, it’s too expensive’, or they know the CEO. The level of intelligence we get from within kills off the next round,” says Mr Giampaolo.

“We do not need to invest, we are not a fund, we have no timelines, we are not under pressure. We only invest if we think the rewards are commensurate with the risk.”

At present, Mr Giampaolo argues, the good companies are available at “very full prices”.

“Really good companies are still going for eight to 10 times ebitda [earnings before interest, taxation, depreciation and amortisation]. That’s not a place that we can get comfortable. There is less visibility of earnings and there is a fraction of the debt available, so they require more equity, and generally more execution risk because of the headwinds in the

“It’s a leap of faith and I don’t need to take a leap of faith. We are so early in the cycle that patience is a

However, Mr Giampaolo does see potential opportunities in slightly less healthy companies. “We have a lot of businesses out there that are going to need to raise more capital, good businesses with bad balance sheets.

“Those are the businesses with which one can still invest on attractive terms. They are not distressed businesses but they do not have the upper hand in negotiating the valuation. I could see us offering 15 investments over the next two years.”

Before the financial crisis Pi’s members were investing a total of £15m-£20m a year across four or five deals. The sums are small, but Mr Giampaolo says Pi is often invited to co-invest on favourable terms because of the knowledge and skills its members can bring to the table; a Pi member with relevant experience will often be seconded onto the board to mentor and advise the existing directors.

“There have been transactions with enterprise values of £1bn-£10bn where we have invested £1m or £5m. It’s utterly insignificant, less than the advisers would earn in fees,” he says, adding: “If someone comes to us because they need our money we probably wouldn’t be interested.”

Pi took a slice of Gala’s £2.2bn acquisition of Coral Eurobet and the £835m management buy-out of Fitness First, in which Mr Giampaolo, who became a gym instructor after leaving his Florida school at the age of 16, has a significant holding.

But it does occasionally take a majority stake, as in the £5m MBO of Thomsons Online Benefits, a consultancy.

Mr Giampaolo is reticent to discuss the rates of return Pi has generated. However, he says in the venture capital arena Pi’s track record, in the round, is “poor”.

“We believe it’s the industry norm. Unfortunately that’s not very good.”

In the growth, or development capital arena he claims Pi has done “very well”, a description he also applies to Pi’s buy-out deals, with the exception of “two or three” that were struck immediately prior to the financial crisis that are “significantly under water”, as is the case with much of the private equity industry’s 2007 vintage.

“There is no hope of getting a return on our investment, we just want a return of our investment. Most GPs [general partners] that invested in 2007/08, if they got a return of their capital, they would be so happy they would dance in the street naked.”

One deal that will not provoke unclad gambolling near Pi’s Mayfair HQ is Lombok, in which Pi invested £2.5m for a 47 per cent stake in 2005 and promptly installed Will Hobhouse, who built up Tie Rack and Whittard of Chelsea, as chairman. The furniture chain went into administration in July amid claims that Pi’s business model made it hard for a rights issue to succeed.

This allegation is denied by Mr Giampaolo, who says simply: “smart people know when to cut their losses”.

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