Feb. 8, 2021, 5:02 AM EST By Gretchen Morgenson
Source: NBC
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Consulting giant McKinsey allegedly fed the opioid crisis. Now an affiliate may profit from treating addicts.
McKinsey's wholly owned hedge fund affiliate, MIO Partners, holds indirect stakes in addiction treatment centers and a maker of overdose treatments.
McKinsey & Co., the global consulting giant, agreed to pay nearly $600 million last week to settle allegations by 49 states that its work for large opioid manufacturers helped "turbocharge" sales of the drugs, contributing to an addiction epidemic that rocked the country and has caused more than 400,000 deaths.
The settlement is a black eye for the firm, which holds itself out as the preeminent global consultant advising corporations and governments. But because most of the money to be paid by McKinsey will go to state programs funding addiction treatment centers and recovery services, the deal may allow a McKinsey hedge fund affiliate to generate investment gains, an NBC News investigation has found. That's because the firm's wholly owned hedge fund affiliate, called MIO Partners, holds indirect stakes in addiction treatment centers and a maker of overdose treatment products. In addition, investment records show, during the years McKinsey was helping opioid makers propel sales of the drugs, MIO Partners held stakes in companies that profited from increased usage.
The MIO investment records don't provide enough detail to determine how much it has made or stands to make from opioid-related investments. But they show that MIO, which is run on behalf of current and former McKinsey employees, invested in companies that benefited during the rise of the opioid crisis and now holds stakes in companies that could profit from remediation efforts in the aftermath.
A McKinsey spokesman said it is "false and absurd" to suggest that the firm will benefit financially from the big state settlement. "McKinsey has no visibility into or control of how settlement money will be used by the states," he said. In addition, he said, the hedge fund and the firm's consulting business are "operationally separate," and the firm's past stakes in opioid makers through MIO were taken by outside investment managers whose decisions McKinsey doesn't direct or control.
But Marianne Jennings, a professor of legal and ethical studies in business at the W.P. Carey School of Business at Arizona State University, said the simultaneous operation of the hedge fund and McKinsey's vast consulting business poses potential conflicts that aren't easily remedied.
"On conflicts of interest, there are two ways to handle them — you disclose them and manage it or you don't do it," Jennings said. "I don't know how you manage that unless you can show me there is absolute isolation of this fund. No matter how you slice it, you benefit. I don't see how you don't have an interest in that and input in that."
MIO Partners oversees its investments with a staff and a 14-person board, regulatory filings show. Eight current or former McKinsey executives are directors, joined by six non-McKinsey directors, four of whom joined recently.
MIO's management selects an array of investment managers to deploy its $14.6 billion. They make investment choices independent of MIO and are compensated by McKinsey, according to an independent study commissioned by the Financial Oversight and Management Board for Puerto Rico, a federal watchdog that monitors the island's budget. After MIO selects its investment managers, it may discuss individual investments with them, the study said.
McKinsey says the MIO structure is "not unusual." But it is. Most large companies, including all the major consulting firms, hire third-party firms like Fidelity and Vanguard to oversee their employees' retirement accounts. Those firms typically offer employees a handful of big-name mutual funds to choose from, letting them make their own investment decisions. The holdings of such mutual funds are transparent, while MIO's stakes are more opaque. Since 2010, Labor Department filings show, a retirement fund managed by MIO has amassed a $108 million stake in Deerfield Management Co., a $10 billion health care investment firm based in New York. Two top Deerfield executives previously worked at McKinsey.
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