6/5/2016 McKinseyssecret$5bnfundinspotlightFT.

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June5,20166:05pm

McKinseyssecret$5bnfundinspotlight
MilesJohnsonandHarrietAgnew

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McKinsey,oneoftheworldsmostinfluentialconsultingfirms,hasbuiltupasecretive$5bninternal
investmentarmthatmanagesthefortunesofitspastandpresentpartners,raisingquestionsover
possibleconflictsofinterest.

KnownasMcKinseyInvestmentOfficePartners,itisoverseenbya12strongboardofthe
consultantsmostseniorpartnersandadvisers,accordingtodocumentsseenbytheFinancial
Times.

Thefirmspartnersontheboardwhichincludetheheadsofthe
Americas,energy,investmentbanking,andprivateequitydivisionsdonotdisclosetheirworkat
thefundintheircorporatebiographies,andtheyarenotnamedonMIOswebsite.

Theexistence,sizeandinvestmentsofthehighlyprofitableinternaltradingfund,whichwassetup
threedecadesago,haveuntilnowremainedlargelyunknownoutsideacircleofformerandcurrent
McKinseyinsiders.Expartnersattheprestigiousfirmhavegoneontorunsomeoftheworlds
largestcompaniesorhavetakenupimportantgovernmentpositions.

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6/5/2016 McKinseyssecret$5bnfundinspotlightFT.com

Giventhesizeoftheinternalinvestmentfund,itraisesthequestionofwhethertheresaconflictof
interestherebetweenMcKinseysinvestmentstrategyanditsclientsneeds,saidFiona
Czerniawska,directorofSourceGlobalResearch,anauthorityontheconsultingindustry.

MIOsaidtheboarddelegatedinvestmentdecisionstothedivisionsmanagement,addingthatithad
arigorouspolicytoavoidconflictsofinterest.

ThelittleknownpartnersinvestmentgroupwasdesignedtoretainMcKinseystoptalentandhas
generatedhundredsofmillionsofdollarsinprofitsforitsclientsoverthreedecades.Itsflagship
offering,calledCompassSpecialSituations,hasmademoneyfor24ofthepast25yearsonly
sufferingalossattheheightoftheglobalfinancialcrisisin2008,accordingtoaninvestor.

MIOhastotalassetsof$9.5bnaroundhalfarepartnerinvestmentswhiletherestisinvestedon
behalfoftheMcKinseygrouppensionplan.

MIOismanagedindependently,andallitsactivitiesareseparatefromMcKinseysconsulting
operations,McKinseysaid.

InitsfunddocumentsMIOsaiditwaspermittedtomakeinvestmentsinthesecuritiesofcompanies
forwhichMcKinseyactedasaconsultant.

Onedisclosurestated:MIOsparent,McKinsey,isaninternationallyrecognisedconsultingfirm
thathasavarietyofbusinessengagementswithnumerousissuersofsecurities,andthatMIOs
fundswerenotrequiredtorefrainfrominvestinginsuchissuers.

MIOsaiditwasregulatedbytheUSsSecuritiesandExchangeCommissionandtheUKsFinancial
ConductAuthority.

TheMcKinseyinvestmentfundemploys80peopleinseveralcountriesrivallingsomeofthe
worldslargesthedgefundsintermsofpersonnelandassetsundermanagement.ItsofficesandIT
systemsareseparatefromthoseofMcKinseysconsultingbusinesstoavoidanypossibleleakageof
informationbetweenthetwooperations.

MIOmakesuseofsophisticatedproprietarytradingstrategiesandexternalhedgefundandprivate
equitymanagers,andhasseededsomeofthesefundswithitsowncapital.

Thefunddoesnotinvestdirectlyinpubliclyquotedsecurities,buthasspecialisedinmacro
strategiesaswellascomplicatedilliquidtradesalongsidehedgefundsincludingElliottManagement
andPaulson&Co.

In2014itmade14percentforMcKinseypartners,comparedwitha3percentaverageforhedge
fundsinthesameyear.

RELATEDTOPICS Hedge funds

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