McKinsey has secretive $5bn investment arm

McKinsey, one of the world's most influential consulting firms, has built up a secretive $5 billion internal investment arm that manages the fortunes of its past and present partners, raising questions over conflicts of interest.

Known as McKinsey Investment Office Partners (MIO), it is overseen by a 12-strong board of the consultant's most senior partners and advisers, according to documents seen by the Financial Times.

The firm’s partners on the board – which include the heads of the Americas, energy, investment banking, and private equity divisions – do not disclose their work at the fund in their corporate biographies, and they are not named on MIO’s website.

The existence, size and investments of the highly profitable internal trading fund, set up three decades ago, have until now remained largely unknown outside a circle of McKinsey insiders.

“Given the size of the internal investment fund, it raises the question of whether there’s a conflict of interest here between McKinsey’s investment strategy and its clients’ needs,” said Fiona Czerniawska, director of Source Global Research, an authority on the consulting industry.

MIO said the board delegated investment decisions to the division’s management, adding it had “a rigorous policy to avoid conflicts of interest”.

Generated millions

The little-known partners’ investment group was designed to retain McKinsey’s top talent and has generated hundreds of millions of dollars in profits for its clients. MIO has total assets of $9.5 billion.

“MIO is managed independently, and all its activities are separate from McKinsey’s consulting operations,” McKinsey said. It was regulated by the US’s Securities and Exchange Commission and the UK’s Financial Conduct Authority.

In its fund documents MIO said it was permitted to make investments in the securities of companies for which McKinsey acted as a consultant.

– Copyright The Financial Times Limited 2016