RE: McKinsey’s $12B hedge fund


February 20, 2019

A scathing new report shows that McKinsey’s secretive $12B hedge fund may benefit from the company’s consulting projects.
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McKinsey dukes it out with the NYT to deny its alleged $12.3B conflict of interest

According to a scathing new report from The New York Times, the consulting company McKinsey also operates a secretive $12.3B hedge fund that may benefit from its sister company’s consulting projects.

McKinsey, the largest and most prestigious of ‘The Big 3’ consulting giants, is a notoriously secretive company. But after reporting accused the company of egregious conflicts of interest, ol’ McK’ey is fighting back.

Oh MIO my

Unlike all other major consulting companies, McKinsey operates an investment fund: MIO Partners (the more common name for the “McKinsey Investment Office”) invests billions on behalf of its 30k+ employees.

McKinsey claims that its investment division operates independently of its consulting division, and that MIO was created as an entirely separate entity to compete with Wall Street finance firms in the “war for talent.”

But the NYT claims many MIO directors are former McKinsey consultants. Even worse, it alleges that some of McKinsey’s consulting clients are also MIO investments — a claim McKinsey vehemently denies. 

A quick comeback from ’Kinsey

Hours after the Times published its article, McKinsey’s PR machine had already paid to advertise its rebuttal on Google.

McKinsey said the report was “fundamentally” misleading and insisted that “90% of MIO’s capital is managed by external third-party managers and there is a “strict ‘information barrier’” between the 2 companies.

But regardless of who wins this game of he-said-she-said, these aren’t the first allegations against McKinsey.

The long list of McKinsey’s (maybe) mistakes 

The Times published an article about McKinsey’s role in incubating authoritarian governments in mid-December, and exposed McKinsey’s involvement in a bribery case just 2 weeks later.

McKinsey is such a secretive company that it’s often difficult to trace its investments. But plaintiffs have also accused McKinsey of funneling money to fugitives and investing in unscrupulous pharma giants.

McKinsey is currently tied up in several Justice Department lawsuits due to “pervasive disclosure deficiencies.”  Just yesterday McKinsey settled one of its several lawsuits for $15m — outside of court, of course.

Don’t mess with McKinsey
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SoundCloud adds mainstream distribution to its indie résumé

SoundCloud, the DIY music-streaming service, announced a new music distribution tool for its premium accounts aimed at artists.

With the service, artists can upload their hits to major music platforms — including Amazon Music, Apple Music, Spotify, Tencent, and YouTube Music — all at the same time, according to TechCrunch. 

The music distribution market is hot

SoundCloud notes that its new service is the first distribution tool built directly into the platform. But with Spotify’s recent investment in DistroKid and Apple’s acquisition of the label services company Platoon, that may not be the case for long.

SoundCloud’s new service gives artists the chance to monetize their music through a broader revenue-sharing program, keeping companies like Spotify from taking an arguably criminal percentage once songs are uploaded to their platforms. 

A page out of the Vimeo playbook

After finally admitting it couldn’t compete with the likes of YouTube, Vimeo changed its focus entirely to become a creator tools hub for filmmakers back in September, and it paid off — with a revenue increase of 28% last quarter.

So SoundCloud may be finally hearing the music, realizing that it can offer more value by creating tools that musicians need.

» Keep on fightin’, SoundCloud

No crying in crypto: Bitmain lost almost $500m the 3rd quarter of 2018

Bitmain, a crypto mining hardware unicorn that filed for an IPO last September on the Hong Kong Stock Exchange, submitted an updated review of its financials… and, uh, it wasn’t very reassuring.

The update revealed that Bitmain lost almost $500m in Q3 of 2018, a remarkably different figure than the first half of the year, when the company posted a profit of $1B.

Started with a bang, now we’re here

Early on, Bitmain shot out of the crypto cannon, with a front row seat at the great crypto peak of 2017: The company earned a reported $4B in profits that year, carving out an 85% market share in crypto mining.

Even when the crypto shoe dropped in 2018, the company managed to increase revenue 10x and profit 9x from the previous year.

But Father Time caught up right after the company’s ill-fated filing. According to the update, the value of the company’s holdings (bitcoin, ethereum, litecoin, and dash) collectively dropped $100m over Q3, and has declined more than 50% since.

No mo’ IPO?

In the last year, Bitmain’s been hit with both layoffs and office closures, and this new update certainly doesn’t bode well for the company’s IPO.

The reality is that the Bitcoin bear market has taken a serious toll on all aspects of cryptocurrency, including the mining sector.

In September, we compared Bitmain to that of a shovel maker during a new-age gold rush — unfortunately, shovels are only as valuable as the treasure they’re digging for.

» Bringing a shovel to a knife fight

Palo Alto Networks acquires rival cybersecurity startup Demisto for $560m

Palo Alto Networks (PAN), a California-based cybersecurity giant, acquired its smaller rival Demisto for $560m to streamline its own cybersecurity products. 

But the real winner here is Demisto: The 3-year-old company had only raised a total of $69m to date, giving its few early investors a plush return.

Yep, the cybersecurity industry is still red hot

Since the cybersecurity industry is expected to balloon to more than $300B by 2024, dozens of startups have launched with ambitious goals to tackle enterprise cybersecurity problems.

Palo Alto Networks has emerged as one of the bigger players in that landscape: Prior to the purchase of Demisto, the company sat on $3B in cash and liquid assets. 

Now, Palo Alto Networks hopes to apply Demisto’s automation expertise to its existing systems and expand its client base by adding Demisto’s 150 clients (25% of whom are Fortune 500) to its roster.

For Demisto and its investors, it’s either a big win or a huge win

When Demisto last raised money — a $43m Series C this past October — it was valued at just $218m, meaning the company doubled in value in about 4 months.

Since Demisto had very few early investors, the companies that did have the gumption to invest in the young company made off like bandits in this acquisition.

But, financially speaking, it’s not a bad deal for Palo Alto Networks: In the past 3 months, the company’s stock has risen more than 40%, and it inched even higher yesterday after it announced the acquisition. 

» Demisto in demand
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