Secret investments refer to the practice of major institutions like consulting firms and religious organizations hiding the size and details of their investment portfolios using offshore shell companies. This raises ethical concerns about potential conflicts of interest and lack of transparency. For example, the Mormon church and McKinsey consulting company recently faced scrutiny for failing to disclose billions in investments, sparking allegations of insider trading. To avoid public backlash, companies funnel money through the Cayman Islands and other tax havens, filing limited paperwork on their holdings. However, by obscuring their investors’ interests, firms open themselves to accusations of undue influence, deception, and greed at their clients’ and congregants’ expense.
McKinsey’s hedge fund invested in clients it advised, including bankrupt firms
As a leading global consulting company, McKinsey has deep ties with major corporations and governments across industries. However, McKinsey also owns a $12 billion hedge fund called MIO Partners, which generates above-average returns by investing in shell companies in offshore tax havens. This opaque arrangement hides conflicts of interest, as MIO’s investments may overlap with McKinsey’s consulting clients, creating perverse incentives around business advice. For example, Valeant Pharmaceuticals was a controversial McKinsey client that faced Congressional scrutiny for drug price gouging. Meanwhile, MIO held a large long position in Valeant stock. Similarly, McKinsey failed to disclose MIO’s creditor status in bankrupt firms it was advising through the bankruptcy process. The lack of transparency raises alarms about deals benefiting McKinsey insiders.
The Mormon Church channeled $100 billion in tithes to Wall Street via shell companies
The Mormon church likewise kept its enormous investment portfolio hidden from members for years. By funneling billions in member tithes and donations to Ensign Peak Advisers, Mormon leaders grew the church’s stockpile to over $100 billion by 2019 across hedge funds, private equity, and real estate. Yet not even veteran church insiders knew the scale of these secret investments in corporate America, including Google, Apple, and major banks. Ensign Peak neglected to file required disclosures and instead used shell companies to obscure hard-to-justify speculative investments, against the church’s religious principles of temperance and restraint. While avoiding public scrutiny, the church reaped Wall Street-style returns from its flocks’ faith-based contributions.
In summary, major institutions like McKinsey and the Mormon church exploited secret investments in shell companies to reap huge windfalls while deceiving clients, shareholders, and members. By hiding conflicts of interest and activities from public view, they opened themselves to backlash and allegations of greed, deception, and betrayal of trust.