Massachusetts Dumps Fidelity Ending 35-Year Trust Deal

Massachusetts is ending a 35-year banking relationship with a unit of Boston-based Fidelity Investments, one of the state’s largest employers, to cut costs.

Federated Investors Inc. will replace Fidelity’s Pyramis Global Advisors in providing management services for the Massachusetts Municipal Depository Trust, which oversees money for the state and about 290 local governments, state Treasurer Steven Grossman announced today. Pyramis has managed the funds for the trust since it was created in 1977, he said.

The new contract will cut costs by 34 percent, or almost $8.2 million, over three years through lower investment fees, Grossman said in a statement. Federated, based in Pittsburgh, has also committed to expanding its Boston office and the three-year contract can be extended for two years, he said.

“One of my principal commitments when I took office was to competitively bid all of our contracts, both to save taxpayers money and bring best business practices to all of our operations,” Grossman said in a statement. “This new contract clearly represents the best deal for the commonwealth.”

Fidelity will ensure a smooth transition, Vincent Loporchio, a spokesman, said by telephone.

Disappointing News

“We are obviously disappointed with today’s news,” Loporchio said. “For 35 years Fidelity has delivered on our commitment to MMDT in providing a competitive return and service in line with the state’s expectations and guidelines.”

Started in Boston, closely held Fidelity had about 7,000 employees in Massachusetts at the end of 2011, Loporchio said. The company had $1.52 trillion under management at that time.

Federated had $363.6 billion under management on March 31 and provides services to more than 4,800 clients including governments, according to the company. Federated fell 85 cents, or 3.8 percent, to $21.26 in New York Stock Exchange trading, the biggest decline in more than six weeks.

Meghan McAndrew, a spokeswoman for Federated, said the money manager was “honored” to get the business.

“Federated Investors has a long history of success managing liquidity and fixed-income portfolios,” she said by e-mail.

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