Ronald P. O’Hanley, Fidelity Investments’ head of asset management, is stepping down after less than four years in the role, giving President Abigail Johnson an opportunity to consolidate control of the family-owned firm.
Fidelity, the second-largest mutual fund company, plans to replace O’Hanley with an internal successor, whom it didn’t name, according to a note to employees today from Johnson. O’Hanley, in a separate memo, said he plans to spend more time with his family and nonprofit organizations, before considering a new professional challenge.
O’Hanley, 56, was hired by Chairman Edward C. “Ned” Johnson III as Boston-based Fidelity struggled to recover from the 2008 financial crisis and investors fled actively managed stock funds, the firm’s traditional area of strength. Two years later, the elder Johnson promoted his daughter to be O’Hanley’s boss and positioning her to succeed him as chairman. O’Hanley is the second high-profile executive to quit at a top U.S. money manager in as many days, after the resignation of Pimco head Mohamed El-Erian yesterday.
“Because it is a family company, the number two job at Fidelity is a challenging one,” Russel Kinnel, director of mutual-fund research at Chicago-based Morningstar Inc., said in a telephone interview. “Historically it is a position in which people don’t stay very long.”
O’Hanley joined from Bank of New York Mellon Corp., where he also oversaw money management. Upon his hiring, Fidelity split its investing and distribution businesses. Abigail Johnson took over all client-facing units the same day.
“Ron has effectively led the globalization of our investment team, driven solid investment performance across asset classes, built influential stakeholder relationships and launched innovative advancements to existing and new products,” Johnson said in the memo.
Fidelity lost executives in the past, such as Robert Reynolds, now chief executive officer of Putnam Investments LLC, when it became clear their path to the top job was blocked. That was not the case with O’Hanley, according to Donald Phillips, president of research at Morningstar who has followed Fidelity for more than 25 years.
“I’m shocked that he’s leaving, but it was always clear Ron was never going to run all of Fidelity,” Phillips said.
At the end of 2010 Fidelity managed $1.59 trillion, according to the company. While that amount rose to $1.7 trillion as of Oct. 31, Fidelity lost ground to faster-growing rivals including New York-based BlackRock Inc. and Vanguard Group Inc. in Valley Forge, Pennsylvania.
Fidelity’s mutual funds attracted $5 billion in 2013, compared with $74.6 billion for market leader Vanguard, according to data compiled by Morningstar.
“It has been a tough time for Fidelity,” Geoff Bobroff, a mutual-fund consultant based in East Greenwich, Rhode Island, said in a telephone interview. “They have lost market share and when that happens the guy on top usually gets blamed.”
O’Hanley arrived at Fidelity with the goals of improving asset management and helping Abigail Johnson take over the company from her father, according to John Bonnanzio, editor of Fidelity Monitor & Insight, a newsletter for investors, based in Wellesley, Massachusetts. He feels he accomplished both, said Bonnanzio, who spoke to O’Hanley today.
“On reflection, the time is right for me to move on,” O’Hanley said in his memo.
While O’Hanley struggled to attract assets, he pushed Fidelity into new product areas such as exchange-traded funds. The firm opened 10 equity ETFs in October, each focusing on a broad industry group. It also filed for permission from regulators to introduce actively managed ETFs.
The firm’s target-date retirement funds retained their top spot in the industry and grew by 49 percent to $188 billion.
O’Hanley leaves as the importance of Fidelity’s money-management business within the larger firm is waning. It was once the industry’s biggest player and the heart of the company founded in 1946 by Edward C. Johnson II, Abigail Johnson’s grandfather. It now produces less than half of Fidelity’s revenue. It’s outsized by the combined retirement, brokerage and advisory services units, which together oversee about $2.6 trillion in assets.
Given Abigail Johnson’s still young tenure as president of all of Fidelity’s main businesses, investors should watch closely who will replace O’Hanley, James Lowell, editor of Fidelity Investor, a newsletter based in Needham, Massachusetts, said in a telephone interview.
“It is imperative that Abigail has a trusted wingman going forward,” he said. “That is critical for running the company.”