Fidelity’s Abigail Johnson Consolidates Control

Incoming Fidelity President Abigail P. Johnson
Fidelity Investments' new President Abigail P. Johnson. Photographer: Daniel Barry/Bloomberg

Fidelity Investments named Abigail P. Johnson president, putting the daughter of Chairman Edward C. “Ned” Johnson III in charge of all the key businesses at the second-largest mutual-fund company in the U.S.

Johnson, 50, will oversee asset management, retail and institutional brokerage, retirement and benefits services, the Boston-based firm said today in a statement. While she will report to her father, who remains Fidelity’s chief executive officer, the appointment makes Abigail Johnson the highest-ranking woman in the fund industry.

Abigail Johnson is now the clear successor to 82-year-old Ned Johnson, even though he has not said when he might retire after running the company since 1977. At various times, Robert L. Reynolds, the former chief operating officer, and Ellyn McColgan, the former head of mutual-fund sales, had been considered possible leaders at the firm, which has been controlled by the Johnson family since it was founded by Ned Johnson’s father in 1946.

“It finally answers the question everyone’s been asking for years: Who gets to run this financial juggernaut?” John Bonnanzio, editor of Fidelity Insight, a independent newsletter based in Wellesley, Massachusetts, said in a telephone interview. “It’s going to be Abby Johnson at some point.”

2010 Split

The elder Johnson split control of the firm in May 2010, naming his daughter head of all client-focused businesses and hiring Ronald O’Hanley from Bank of New York Mellon Corp. as head of asset management. O’Hanley, who continues to oversee asset management, will report to Abigail Johnson, Fidelity said today.

Johnson, who started her career at Fidelity in 1988 as a mutual fund manager, has worked in almost every major division at the company. She was named head of the firm’s mutual-fund unit in 2001 and put in charge of Fidelity’s retirement business in 2005. In 2007, the company also gave her oversight of corporate-retirement services and fund sales to individuals.

“She’s spent a number of years at Fidelity in a variety of positions,” Reynolds, now president and chief executive officer of Boston-based Putnam Investments LLC, said in a telephone interview. “It was destined that she would get this job. It’s well deserved and about time.”

Employees control 51 percent of the voting shares in Fidelity, and the Johnson family owns the other 49 percent. Ned and Abigail Johnson each hold at least 10 percent, according to regulatory filings.

‘Actively Involved’

“Abby will oversee all these corporate groups and will be involved in day-to-day activities,” spokeswoman Anne Crowley said in a telephone interview. “Ned continues to be actively involved in running the company and doesn’t have any plans to step aside from those roles.”

Abigail Johnson’s responsibilities will cover every major Fidelity business except Devonshire Investors, Crowley said. Devonshire, named for the Boston street where the firm is headquartered, manages investments for FMR LLC, Fidelity’s corporate holding company, and its shareholders.

Johnson’s promotion comes as Fidelity has trailed money-management rivals such as Valley Forge, Pennsylvania-based Vanguard Group Inc., known for its index-based funds, and Pacific Investment Management Co. in Newport Beach, California, home of famed bond-picker Bill Gross.

Unseating Fidelity

Vanguard, which in 2010 unseated Fidelity as the largest mutual-fund firm, has gathered $80 billion in new client money in the year ended July 31, the most in the industry, followed by Pimco’s $31.6 billion, according to research firm Morningstar Inc. Investors withdrew $16.2 billion from Fidelity funds during the same period. Morningstar’s numbers include only long-term stock and bond assets and not money-market funds.

Fidelity’s mutual funds have attracted net deposits of $2.6 billion this year through July 31 compared with deposits of $65 billion into Vanguard funds, according to Morningstar. Over the past five years, Fidelity funds have had withdrawals of $45 billion, compared with deposits of $318 billion over the past five years in Vanguard funds, Morningstar said.

Unlike BlackRock Inc., the world’s largest asset manager, Fidelity hasn’t built a leading presence in alternative investments such as private equity, hedge funds commodities and real estate. The company’s institutional unit, Pyramis Global Advisors, has $3.5 billion in alternative assets, compared to BlackRock’s $110 billion.

Expecting Changes

“I’m expecting to see changes from Fidelity,” Bonnanzio said. “Maybe we’ll start to see Fidelity do more than talk about changes and get into markets it has utterly failed to participate in.”

Fidelity is currently planning its entry into exchange-traded funds, a product that has grown to about $1.7 trillion as of July 31, according to BlackRock, which became the world’s biggest provider of ETFs after acquiring the investment unit from Barclays Plc in 2009.

Fidelity aims to become the first major mutual-fund company to introduce ETFs run by active stock pickers by opening a series of products based on its “Select” line of industry-focused equity funds, a person familiar with the plans said last month. Spokesman Vincent Loporchio wouldn’t confirm the plans.

Outside money management, Fidelity is the largest provider of 401(k) retirement plans, offering defined contribution and defined benefit plans to more than 19,000 employers. That unit had $25.2 billion in sales in the first half, a 36 percent increase over last year, according to the firm.

Fidelity’s operating income rose 13 percent to $3.33 billion in 2011, and revenue rose by 3.3 percent to $12.8 billion. Investors pulled $36.3 billion from Fidelity funds and other products in the year, down from $49.4 billion in 2010.

Fidelity manages $1.6 trillion in assets and provides record-keeping and administering services on an additional $2 trillion.

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