McKinsey & Co. has reached an agreement to hand over control of its $20 billion investment management firm to Neuberger Berman, after decades of managing the wealth of the consultancy’s partners and former partners in sophisticated hedge fund and alternative investment strategies.
The deal marks a significant expansion for Neuberger and opens a new chapter for the consulting giant, best known for advising large companies and governments. McKinsey had been evaluating the future of MIO Partners, its internal manager, for about a year.
Under the agreement, which still depends on approval from regulators, MIO’s financial consultancy area and around 280 employees must migrate to Neuberger and start operating as a unit of the house, according to a statement. The transaction values were not revealed.
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“We’re doing this because we believe it’s something really special and unique, and we’re very confident that everyone is ‘getting married’ for the right reasons,” said Neuberger President George Walker. “We have the chance to do an even better job for our clients with their know-how, and they can better serve their partners and former partners.”
The bulk of the $20 billion that Neuberger is absorbing is in alternative strategies, mainly in a special situationswhich picks stocks, bonds and other assets with the goal of beating benchmark indices. In total, MIO also has about $6 billion invested in passive index funds.
Neuberger, which currently manages $563 billion, may in the future consider opening up MIO’s core strategies to new clients, according to Walker.
Originating in the mid-1980s, MIO became an independent manager for McKinsey’s high-income executives in 2000. Despite having its own board and management, it remained a subsidiary of the consultancy.
“In view of the growth and expansion of MIO, McKinsey understood that it was no longer the best natural owner of an investment management and consultancy of this size, especially since it was so far from our central focus of activity”, said Pooneh Baghai, senior partner and member of the board of McKinsey. “Neuberger is the best long-term custodian for MIO. That’s what they do, and we are very happy with this partnership.”
The deal had already attracted questions because of McKinsey’s work with client companies. In 2021, the firm agreed to pay US$18 million to settle a case brought by the SEC, the US CVM, which accused the consultancy of failing to maintain and follow adequate rules to prevent the misuse of material non-public information.
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“There are strict barriers between McKinsey and MIO, which has further strengthened its policies and procedures,” said a spokesperson for the consultancy. “It is important to remember that the SEC’s decision does not indicate any misuse of confidential or relevant non-public information, neither by MIO nor McKinsey.”
Walker also said that a natural growth front for MIO, already under Neuberger, is to reinforce exposure to private assets.
“Initially, the idea is to offer McKinsey partners our capabilities in private markets, including in areas that MIO has historically been unable to explore,” he said.
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