One of the global leaders of the consulting industry — McKinsey, American — owned semi-secret internal investment Fund with assets of $9.5 billion for present and former partners, according to the documents at the disposal of the Financial Times. The presence of such a Fund is extremely unusual for a consulting company and raises the question of conflict of interest between McKinsey and investments needs of its clients, say the experts interviewed FT.
Internal Foundation called Partners McKinsey Investment Office (MIO Partners) has been working for about 30 years, but until the last moment of his existence, extent and nature of investment for those who are not included in the circle of current and former partners of McKinsey, almost was not known. During this time it generated customers hundreds of millions of dollars: its main proposal called Compass Special Situations for 25 years brought a profit of 24 years, and the only net loss was recorded at the peak of the global financial crisis in 2008. In 2014, the return of the Fund was 14%, exceeding the average for industry in the 11 PPT
The Fund is managed by a Council, composed of the 12 most senior partners and advisors of the company, including heads of investment banking, the division for work on the markets for direct investment and the Department to work with the energy companies. These people do not indicate the work in MIO in their summary, information about them and no on the Fund’s website. MIO Partners employs 80 people based in several countries. The Fund may become a serious competitor to some of the world’s largest hedge funds in terms of assets under management and number of employees, the FT notes.
McKinsey, numbering currently more than 9 thousand consultants, provides the largest companies in the world services to address strategic issues in particular: whether or not mergers and acquisitions, change the business direction, to reduce the volume of assets and so on. Thus, the McKinsey staff have access to a unique inside information about the companies and the whole industries, the newspaper writes. The fact that former partners retain financial ties to internal investment Fund, raises the issue of potential conflict of interest, say the interviewed experts. “Taking into account the volume of domestic investment Fund, the question arises about the existence of a conflict of interest between the investment strategy of McKinsey and the needs of its clients”, — says the Director of Source consulting Global Research Fiona Cherniavskaja.
McKinsey now owns more than 1.4 thousand partners. Former McKinsey partners hold leadership positions in many of the largest companies in the world high official positions. At different times worked at McKinsey Executive Director Morgan Stanley James Gorman, Chairman of the Board of Directors of Rolls-Roys Ian Davis, chief operating officer of Facebook Sheryl Sandberg and former Executive Director went bankrupt in 2001, the energy company Enron Jeff Skilling.
Fund of funds
Total assets under management MIO to date is $9.5 billion, where approximately half of the personal investment of present and former partners, while the remaining funds are invested within the pension plan McKinsey. As the FT explains, MIO performs operations using its own means. The Fund generally uses the strategy of “Fund of funds (invests in various hedge funds), but may implement and direct investments. MIO does not invest directly in publicly listed securities, but specializiruetsya on macrostrategy and complex trading operations in illiquid assets along with hedge funds like Elliott Management and Paulson. MIO Partners, as a rule, not disclose their investment even customers. McKinsey partners involved in the transactions must have the status “accredited investors”; this means that the net value of their assets must be at least $1 million.
As the FT explains, when partners leave from McKinsey, they often put their money in MIO Partners, which is one of the reasons to maintain ties with the company. One of the current partners of McKinsey in Europe, who wished to remain anonymous, told the publication, what a close relationship the company tries to maintain with former teammates: “They congratulate you on your birthday, they know all about your family. They send his former employees their best records. They are part of your professional development. Sometimes it’s a little annoying”.
On the website MIO Partners revealed that the company is 100-percent “daughter” McKinsey & Company, but the FT notes that when the name of a little-known MIO Partners appears in public documents, to trace the connection with the famous parent company of the naked eye is very difficult. McKinsey says that “in MIO independent management and all its activities are separate from consulting activities” of the company, in particular, MIO and McKinsey are working in different offices, they have different computer systems. As stated in an interview with FT press Secretary McKinsey, the company is “seriously” applies to ethics. According to him, investment managers MIO does not know about clients of McKinsey and the McKinsey consultants don’t know about the investments under the control of MIO. The Fund invests according to the principle of “blind trust”, it said on its website, and its activity is regulated by the securities and exchange Commission (SEC) and the Office of financial regulation and supervision in the UK. As the FT notes, the documents for a fee MIO Partners claims to have “information barrier” between him and the McKinsey consultants.