February 19, 2019
Good Tuesday morning. Breaking: Karl Lagerfeld, the influential fashion designer and longtime creative director of Chanel, has died at 85. (Was this email forwarded to you? Sign up here.)
The drug maker Valeant Pharmaceuticals was one of several companies where McKinsey both advised and invested. Christinne Muschi/Reuters
Did McKinsey sell advice with a stake in the outcome?
As McKinsey & Company advised some of the biggest companies in the world, the NYT reports, it may have had a vested interest in the outcome, through a little-known in-house hedge fund that holds stakes in some of the firm’s clients.
Little about the fund, the McKinsey Investment Office, is public.
A large part of its approximately $12.3 billion in holdings is “concealed behind a tangle of shell companies in an island tax haven in the English Channel,” the NYT reports. As a result, “any intersections between McKinsey’s consulting work and the fund’s investments are largely hidden.”
The office took a stake in Valeant, the drug maker that was advised by McKinsey and is accused of improperly raising pharmaceutical prices. It also invested in Puerto Rican bonds while the firm advised the island on how to deal with its debt.
McKinsey says there’s no conflict of interest.
It insists the office is run separately from its consulting operations, and that 90 percent of its funds are run by outside managers.
But it faces increasing skepticism about that from Congress and in various lawsuits. “A federal judge in Virginia last month reopened a coal-company bankruptcy case after learning that McKinsey had not disclosed, as required by law, that it was also among the company’s secured creditors, through MIO,” the NYT reports
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
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Trump’s plan to fund his wall heads to court
A coalition of 16 states, including California and New York, sued the Trump administration yesterday over his plan to use emergency powers to spend billions of dollars on a border wall, Charlie Savage and Robert Pear of the NYT report:
• “The clash raises questions over congressional control of spending, the scope of emergency powers granted to the president, and how far the courts are willing to go to settle such a dispute.”
• “Xavier Becerra, the attorney general of California, said in an interview that the president himself had undercut his argument that there was an emergency on the border.”
• “The lawsuit, California et al. v. Trump et al., says that the plaintiff states are going to court to protect their residents, natural resources and economic interests.”
• “Plaintiffs will need to establish standing by showing that they are suffering some particular injury from what Mr. Trump is doing. Several of the lawsuits involve people who own land or represent communities along the Mexican border in Texas, where Mr. Trump has put the focus of his emphasis on the need for more barriers.”
Treasury Secretary Steven Mnuchin, left, with the U.S. trade representative, Robert Lighthizer, and Vice Premier Liu He of China in Beijing last week. Pool photo by Mark Schiefelbein/EPA-EFE/Rex
Will more U.S.-China trade talks deliver a deal?
After a series of discussions between America and China in Beijing last week that President Trump called “very productive,” negotiators reopen their conversations in Washington this week.
What’s happening:
Negotiations kick off today. Then on Thursday and Friday, Vice Premier Liu He of China will meet with the U.S. trade representative, Robert Lighthizer, and Treasury Secretary Steven Mnuchin, according to Bloomberg.
What to expect:
The Trump administration “is racing to strike a deal that will result in long-term reforms,” according to the WSJ, which notes that such a pact would “prove that tariffs are an effective battering ram to open markets around the world.”
But it’s not done yet.
Despite Mr. Trump tweeting that “big progress being made on soooo many different fronts!” in these trade negotiations so far, the WSJ reports that “people briefed on the negotiations said big outstanding differences remain.”
More trade news:
Why Mr. Trump may want to keep car tariffs in his back pocket. HSBC says the U.S.-China trade war is why it missed its profit targets.