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As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

nytimes.com

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Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#91

Post by doktrin »

cubecul wrote: post #58
brootstrap wrote: post #49

Earlier quoted context omitted.

all of my experience with McKinsey has been an utter waste. Worked with multiple contractors on multiple backend database projects. They work like a walking ad for AWS services but dont actually know shit. We have a 10+TB dataset (growing by gigs each day) that is spread across a few postgres servers. These servers are decent but foreseen as bottle neck in coming years. This guys suggestion is to put our data in redi…

Former McK here. You asked the wrong folks to come in...I'm not sure I would ask b-school grads (my former colleagues - love them to death) to talk technical stuff.

Nobody with any technical competence is inviting a place like McKinsey in the first place. Because of course not. Unfortunately McKinsey is quite happy to talk a big game and sell sub-par technical services to their customers who are either too dumb or too craven to see through the charade. Same goes for big-4 technical consulting in my experience, but less extreme.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#92

Post by tomp »

crazygringo wrote: post #71
tribune wrote: post #47

From Matt Levine of Bloomberg: Here is a New York Times story about the “McKinsey Investment Office, or MIO Partners,” the in-house hedge fund of consulting firm McKinsey & Co., which invests employee money, including in companies that McKinsey advises. “That web of relationships underscores the unusual nature of McKinsey’s hedge fund, and the potential for undisclosed conflicts of interest between the fund’s investm…

The idea that there is no problem because both McKinsey and the company want to make money seems... ludicrous to me, and completely misunderstands insider trading. The problems would be: 1) McKinsey learns about non-public good things on the inside, and so buys even more stock than they otherwise would (pretty much the definition of insider trading) and/or sells competitors' stock 2) McKinsey learns about non-public…

Why do you think that would be more likely in a structure like McKinsey's than in other structures? E.g. many banks have such structures (e.g. trading and M&A have a "firewall" between them so that no information crosses), and obviously insider trading/market manipulation happens between companies with no (or very little) legal connections (e.g. LIBOR scandal, or most other insider trading).

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#93

Post by FabHK »

> Tom Peters, the management guru and co-author of “In Search of Excellence,” said that during his time as a McKinsey partner in the late 1970s, managers rejected the notion of having financial stakes in their clients.

> “You can’t be advising people and have a fiduciary interest in the people you’re advising,” Mr. Peters said in an interview.

That's weird, though, in a sense. Wouldn't you want the people consulting you to have a stake in your company? Wouldn't that "align incentives"? Shouldn't you pay the consultants in shares that vest over the next 5 years?

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#94

Post by Nasrudith »

randyrand wrote: post #68

Isn't that normal? How strange would it be for me to tell my friends "this stock is going to skyrocket, buy some!" without owning any myself? Anything otherwise would come across as extremely disingenuous. This is a non-issue.

No it isn't. Pump and dump is another well established scam for one. And an advisor who indirectly makes money from a recommendation is one in a really untrustworthy position which is way worse than one detached. The later may feel less of a need for confidence but the previous essentially gets rewarded for doing what they are regardless of if it is a good idea. Lack of skin in the game is a lesser evil than conflict of interest.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#95

Post by TomMarius »

doktrin wrote: post #61
thenanyu wrote: post #10

Earlier quoted context omitted.

It's a bit preposterous, no serious professional hold this kind of prejudiced view. Yahoo, McK, GS, FB, Uber, etc. might not hold the prestige it used to on your CV, but these things ebb and flow. Microsoft used to be "lame" but now it's cool again.

Moreover, even when Microsoft was "lame", its employees were still individually respected as being competent in their field (unless given a specific reason to think otherwise).

Yeah. Microsoft was seen as evil, not bad - "evil" is quite the opposite IMO. Anyone incompetent is not in the position to even become evil.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#96

Post by jacques_chester »

b_tterc_p wrote: post #30

Seems highly unlikely that there’s any actual secretive insider trading happening here. It would be a HUGE risk for practically no gain, distributed across many individuals, committed by primarily people who wouldn’t stand to benefit. The firm should probably switch to vanguard or whatever... but the existence of this hedge fund does not mean the firm is using its insider knowledge maliciously. Most consultants won’t…

> Seems highly unlikely that there’s any actual secretive insider trading happening here.

There's no smoking gun and the Times did seem to be fishing around for one in this piece. It's a bit of a lurcher.

On the other hand:

> Internal documents examined by The Times show that from 2000 to 2010, MIO’s flagship fund, the Compass Special Situations Fund, had an average annual return above 9 percent, compared with a 1.6 percent loss in the S&P 500 Index. In 2008, when the broader United States stock market fell more than 36 percent, the Special Situations Fund lost about half that amount.

It's possible to get that kind of return with nothing but public information. But it's a lot easier if you have miraculous hunches every now and then.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#98

Post by solveit »

lordnacho wrote: post #81
akozak wrote: post #72

Earlier quoted context omitted.

Insider trading would be bad and illegal. But absent evidence that it's happening, I think his point is that merely having a stake by holding securities isn't inherently problematic.

Well then McKinsey should just say which firms they have positions in, and everyone can be satisfied that there's no problem?

McKinsey should do nothing because responding to a non-story is terrible PR.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#99

Post by Gpetrium »

b_tterc_p wrote: post #30

Seems highly unlikely that there’s any actual secretive insider trading happening here. It would be a HUGE risk for practically no gain, distributed across many individuals, committed by primarily people who wouldn’t stand to benefit. The firm should probably switch to vanguard or whatever... but the existence of this hedge fund does not mean the firm is using its insider knowledge maliciously. Most consultants won’t…

I think the trick with this matter is that as long as the incentive outweigh the risk to at least 1 actor at some point in time, they will attempt to make a move that can be seeing as insider trading. It becomes a matter of whether society and the company are ok with the risk and the mitigation efforts that are being implemented.

Let's not kid ourselves, people have been caught in stuff like insider trading for peanuts before.

Re: As McKinsey Sells Advice, Its Hedge Fund May Have a Stake in the Outcome

#100

Post by mruts »

gotocake wrote: post #90
paganel wrote: post #37

Earlier quoted context omitted.

> a HUGE risk for practically no gain The same thing happened in the Libor scandal, those involved took a very big risk for not such a big gain and look what that caused: a market worth hundreds of billions of dollars (if not more) being manipulated in exchange for stuff like Champaigne bottles and some fancy dinners out (all of the latter worth at most $10,000).

The LIBOR scandal was predicated on them using online chat rooms, instead of just the kind of proven “wink and a nod over drinks” that’s being alleged here. In essence, they took an even bigger risk than what is being described in this article, and as you say, for lesser rewards.

Things have changed a lot since 2012. Of course, we don't have information that we are not privy to, but I still think it's unlikely. I'm saying this as a finance professional, but of course, I really don't know what other people would do, but I know that my firm wouldn't traffic in something so high risk. Not because of some moral opposition of course, but just because the potential fines could potentially be an extinction event for the firm.
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