Financier Weijian Shan's new book Money Games is a tell-all account of one of Asia's biggest and hotly contested private equity takeovers Image: Asia Society

In an environment when criticism of capitalism is rampant, private equity comes under particularly harsh scrutiny.

This elite sub-sector of finance has suffered particularly due to its secrecy. For decades, PE executives felt their responsibility for communication was only to the limited partners in their funds. 

There was little benefit in communicating more widely, especially if you were not trying to attract new investors and deal flow was plentiful. The business emerged in the 1980s, but even today while wider communications are more prevalent, PE firms engage with the press gingerly and tend to eschew social media.

PE’s detractors will tell you the sector has not changed since the “greed-is-good” 1980s. According to their narrative, PE works as follows: wealthy investors use other people’s money to scoop up undervalued businesses, pile on debt, fire employees to cut costs, pay themselves lavish dividends and then sell what is left of the company a few years later.  

Essentially, then, PE is a destructive economic force.

Or is it? For a fascinating contrary view from a deep insider, turn to Weijian Shan’s corporate memoir Money Games: The Inside Story of How American Dealmakers Saved Korea’s Most Iconic Bank, which is published on Tuesday in the United States. 

It is an extraordinarily detailed account of one of Asia’s most high-profile transactions of the late 1990s: the rescue and turnaround of Seoul-headquartered Korea First Bank.

Seoul’s Korea First Bank – now SC First Bank – was the centerpiece of a controversial but ultimately successful acquisition by Newbridge Capital. Photo: Asia Times/Andrew Salmon

In the wake of the 1997-1998 Asian financial crisis, South Korean banks became over-extended through loans they had made to failing industries and firms. As Shan relates, as many as one in four loans were believed to be uncollectable. 

A top-10 commercial bank in South Korea, Korea First’s viability hung by a thread. There was a desperate need for outside capital to stabilize the bank.   

Enter PE firm Newbridge Capital.  

Newbridge, a joint venture between David Bonderman’s Texas Pacific Group (now TPG) and Richard Blum’s Richard C. Blum and Associates (now Blum Capital), was one of the earliest US private equity firms to target investments in Asia. Shan would be the professional face of Newbridge in the Far East.

Some context is in order. It was Bonderman, working for Texas billionaire Robert Bass in the wake of the US thrift crisis in 1988, who led the acquisition of American Savings and Loan (California) from the Federal Deposit Insurance Corporation (known as the Federal Savings and Loan Insurance Corporation, or FSLIC, at the time).

In that US$500 million buyout, Bonderman pioneered a “good bank/bad bank” structure, essentially splitting American Savings into a healthy retail savings bank and a separate institution to hold the legacy underwater assets.  

While Bass’ investment group had rights to return nonperforming assets to the government from the bad bank if they could not be worked out, the structure also allowed the federal government to participate in any upside the recapitalized good bank achieved. 

Bonderman believed allowing US taxpayers to share in any successful turnaround would make the deal more palatable to regulators concerned about the image of wealthy investors buying thrift institutions at bargain prices.  

In the end, the government recovered nearly half a billion dollars when the thrift was sold eight years later in a $1.565 billion deal, including debt assumption. 

That “good bank-bad bank” structure became the benchmark for future distressed bank deals, including Korea First Bank.

From surviving to thriving

The author knows something about survival and perseverance. 

In his first book, Out of the Gobi: My Story of China and America, he details his life as a victim of China’s Cultural Revolution and how he overcame struggles that cost millions of lives. Shan’s clandestine notes from those years provide a detailed account of devastation and despair.  

Shan made it through the madness. Though he never went to high school, he eventually moved to America, earned advanced degrees in business administration from the University of California at Berkeley, became a university professor and ultimately transitioned to a career in finance.

Today he is chairman and CEO of PAG, one of Asia’s most successful private investment firms, based in Hong Kong. Shan’s penchant for detailed notetaking in times of high stress serves him well in his latest book. 

Author Weijian Shan has opened the doors on private equity’s inner dealings. Image: Twitter

For what may be the first time, a senior PE executive takes us through the grueling efforts required to close a major deal – the highs and lows, the reneged promises, the strategies, the mistakes, the days and weeks of negotiation – and ultimately the deal itself. 

With national pride on the line and top-end government administrators at the bargaining table, the Korea First deal was especially complex and challenging. Shan’s account demonstrates the tenacity PE pros need to achieve the compromises that protect their investors while meeting the needs of skeptical counterparties – in this case, Seoul regulators.  

It was a rough ride – far beyond the relationship with regulators. Newbridge was demonized in the South Korean media and public spaces, as locals angrily asked whether Newbridge, and other funds entering South Korea at the time, would exit with “unreasonable profits.”

The reader will undoubtedly wonder at times: Why didn’t these folks just walk away?

After Newbridge secures ownership in 1999 for some $500 million, Shan shares the hard work needed to repair the damage at Korea First, ensure its survival – without laying off any staff – and turn the bank around.

Eventually, in 2005, the rejuvenated Korea First was sold to the UK’s Standard Chartered for a whopping $3.3 billion in what was, at the time, the biggest foreign investment ever in South Korea.

Throughout, Shan manages to maintain the kind of pace one would expect from a well-written novel. Who would have thought 15 hours in a conference room could be suspenseful?

Speaking broadly, Money Games serves as a valuable primer for those whose work entails negotiations, government relations and media communications. Speaking specifically, it is required reading for those interested in modern finance, as it provides a unique glance behind the closed doors of PE.

As such, it may help to counter misperceptions about PE’s role and demonstrate the benefits it can bring to institutions and industries, rather than simply returns to its executives and investors. In the end, those insights may be the most valuable contribution Shan can make with Money Games. 

Owen Blicksilver is a veteran public relations professional based in New York.