Key Takeaways
- • McKinsey's internal hedge fund MIO Partners lost over 90 percent of its $100 million investment in New Stream Secured Capital, a Connecticut-based hedge fund that collapsed in fall 2008 amid a fraud scheme, according to testimony from then-MIO portfolio manager Alexander Kisilevich at the perpetrator's 2014 sentencing hearing.
- • New Stream managing partner David Bryson was sentenced to 33 months in prison in 2015 after the SEC asserted the hedge fund fraud "cost investors millions of dollars" through a scheme designed to mislead investors and sustain management fees, though the case received minimal public attention relative to contemporaneous frauds.
- • MIO (McKinsey Investment Office) is a wholly owned subsidiary hedge fund of funds exclusively available to McKinsey employees, partners, former partners, and family members, representing a significant but largely opaque investment vehicle for the global consulting giant's internal stakeholders.
- • During MIO's involvement with New Stream's collapse, several MIO-managed funds lent capital to the failing hedge fund in exchange for assets concentrated in discounted life insurance policies—a once-popular but ultimately problematic hedge fund strategy that deteriorated as life expectancy increased.
- • McKinsey's legal counsel aggressively challenged Institutional Investor's reporting on this story through "lengthy and accusatory letters," with assertions ranging from editorial bias to irresponsible reporting, though the publication maintained its editorial position.
Summary
The 2008 financial crisis spawned numerous fraud cases, but one involving McKinsey & Co.'s internal investment operation has remained largely out of public view. New Stream Secured Capital, a Connecticut-based hedge fund, perpetrated what the Securities and Exchange Commission later characterized as a fraud scheme designed to mislead investors and sustain management fee flows. The fund collapsed in fall 2008, ultimately costing investors millions of dollars. New Stream's managing partner David Bryson was convicted and sentenced to 33 months in prison in 2015, yet the case attracted minimal media scrutiny compared to other contemporaneous financial frauds.
What distinguishes New Stream's collapse from routine hedge fund fraud is the identity of one of its most significantly affected investors: MIO Partners, the internal hedge fund of funds subsidiary of McKinsey & Co. MIO, which stands for McKinsey Investment Office, is a unique investment vehicle accessible exclusively to McKinsey employees, partners, former partners, and immediate family members. According to testimony from Alexander Kisilevich, MIO's portfolio manager at the time, the fund lost more than 90 percent of its $100 million investment in New Stream—a substantial loss for an internal investment vehicle serving McKinsey's senior stakeholders.
The circumstances surrounding MIO's exposure reveal additional complexity. As New Stream faced imminent bankruptcy, several funds under MIO's management provided capital to New Stream to keep the struggling hedge fund operational. In exchange for this emergency lending, MIO acquired assets that constituted the core of New Stream's portfolio: life insurance policies purchased at significant discounts from individuals willing to sell their death benefits for immediate cash. This strategy—settling life insurance policies at below face value—was popular among hedge funds during certain market periods but deteriorated substantially as actuarial life expectancy increased, undermining the economic thesis underlying these investments.
The publication of Institutional Investor's investigation into this matter prompted aggressive legal responses from McKinsey's counsel, who dispatched lengthy letters disputing the reporting and raising allegations of editorial bias and irresponsible journalism. Institutional Investor maintained its editorial position and stands behind the story, indicating the consulting firm's clear preference for limiting public disclosure regarding its internal investment operations and their performance during the financial crisis.
What distinguishes New Stream's collapse from routine hedge fund fraud is the identity of one of its most significantly affected investors: MIO Partners, the internal hedge fund of funds subsidiary of McKinsey & Co. MIO, which stands for McKinsey Investment Office, is a unique investment vehicle accessible exclusively to McKinsey employees, partners, former partners, and immediate family members. According to testimony from Alexander Kisilevich, MIO's portfolio manager at the time, the fund lost more than 90 percent of its $100 million investment in New Stream—a substantial loss for an internal investment vehicle serving McKinsey's senior stakeholders.
The circumstances surrounding MIO's exposure reveal additional complexity. As New Stream faced imminent bankruptcy, several funds under MIO's management provided capital to New Stream to keep the struggling hedge fund operational. In exchange for this emergency lending, MIO acquired assets that constituted the core of New Stream's portfolio: life insurance policies purchased at significant discounts from individuals willing to sell their death benefits for immediate cash. This strategy—settling life insurance policies at below face value—was popular among hedge funds during certain market periods but deteriorated substantially as actuarial life expectancy increased, undermining the economic thesis underlying these investments.
The publication of Institutional Investor's investigation into this matter prompted aggressive legal responses from McKinsey's counsel, who dispatched lengthy letters disputing the reporting and raising allegations of editorial bias and irresponsible journalism. Institutional Investor maintained its editorial position and stands behind the story, indicating the consulting firm's clear preference for limiting public disclosure regarding its internal investment operations and their performance during the financial crisis.
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