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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

#101

Post by casefields »

akozak wrote: post #72
crazygringo wrote: post #71

Earlier quoted context omitted.

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…

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.

The biggest risk if they were doing it is if anyone whistle blows on them that person can get a fat reward: https://www.sec.gov/whistleblower

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

#102

Post by diminoten »

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…

Because they're signing a bunch of document saying they're not going to do exactly this, so if they are doing exactly this, well... with their own petards they shall be hoistened, and that's a given.

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

#103

Post by gotocake »

mruts wrote: post #100
gotocake wrote: post #90

Earlier quoted context omitted.

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 ext…

I hope you’re right, but the skeptic in me says that people who commit crimes tend to do so thinking they won’t get caught. It’s the problem with the death penalty or any harsh regime of sentencing; the deterrence effect is nonexistent.

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

#104

Post by Nicholas_C »

tomp wrote: post #92
crazygringo wrote: post #71

Earlier quoted context omitted.

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).

In the short time I worked for a bank during an internship it was very apparent that there is training one goes through regarding this sort of thing and a very formalized processes with strong rules about how you can even contact the other side of the house. I doubt McKinsey has this structure.

This is a pretty softball take by Matt Levine.

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

#105

Post by the_watcher »

Nicholas_C wrote: post #104
tomp wrote: post #92

Earlier quoted context omitted.

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).

In the short time I worked for a bank during an internship it was very apparent that there is training one goes through regarding this sort of thing and a very formalized processes with strong rules about how you can even contact the other side of the house. I doubt McKinsey has this structure. This is a pretty softball take by Matt Levine.

Why would you assume that McKinsey doesn't also have a Chinese wall with training that MIO employees have to go through?

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

#106

Post by leroy_masochist »

AJRF wrote: post #82
leroy_masochist wrote: post #29

Former investment banker here with lots of experience consulting for professional investors. The substance of the article strikes me as, "potentially really bad, but no obvious smoking gun". MIO is a special situations hedge fund, meaning that it looks for companies that desperately need capital for one reason or another, and who have been poorly served by the market for capital because some aspect of their story is…

> MIO is a special situations hedge fund, meaning that it looks for companies that desperately need capital for one reason or another, and who have been poorly served by the market for capital because some aspect of their story is messy and/or tough to understand, and provides them capital on terms that give MIO a lot of upside if the company gets back into good shape. You have to hand it parent here, thats an amazin…

> From a fundamental standpoint how could you ever believe this situation is anything other than what it looks like on the surface, insider trading?

This isn't an insider trading scandal; that is not what McKinsey is accused of here. But thanks for calling me a wanker!

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

#108

Post by nebolo »

Nicholas_C wrote: post #104
tomp wrote: post #92

Earlier quoted context omitted.

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).

In the short time I worked for a bank during an internship it was very apparent that there is training one goes through regarding this sort of thing and a very formalized processes with strong rules about how you can even contact the other side of the house. I doubt McKinsey has this structure. This is a pretty softball take by Matt Levine.

Of course McKinsey has this structure. Indeed Puerto Rico recently investigated this structure and found it up to the task: https://www.mckinsey.com/~/media/mckinsey/about%20us/media%2...

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

#109

Post by georgeek »

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…

McKinsey has a lot of Chinese walls internally: most partners and consultants who have been working for one client would never advise that client's competitors. The firm is very careful about keeping the trust their clients have in them, as that's ultimately what they're selling.

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

#110

Post by staticautomatic »

leroy_masochist wrote: post #31
staticautomatic wrote: post #21

Earlier quoted context omitted.

Unless you count Goldman taking the other side of those same IB deals against their own clients...

That wasn't banking, it was sales and trading. While Birnbaum and the other individuals involved in Abacus acted especially douchey in front of Congress, the point that was apparently lost on many people was that when a market maker sells something off their prop books, they are inherently short that thing

It's funny that you write are if they're separate companies.
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