Fidelity Succession Clear as Abigail Johnson Promoted
Fidelity Investments resolved the long-running question over its succession plan by naming Abigail P. Johnson president, putting the daughter of Chairman Edward C. “Ned” Johnson III in charge of the key businesses at the second-largest mutual-fund company in the U.S.
Abigail Johnson, 50, will oversee asset management, retail and institutional brokerage, retirement and benefits services, the Boston-based firm said yesterday in a statement. While she will report to her father, who remains Fidelity’s chief executive officer, the appointment makes her arguably the most powerful woman in the $12.2 trillion fund industry.
Johnson is now the clear successor to 82-year-old Ned Johnson as the company founded by her grandfather in 1946 struggles with the move by an increasing number of investors away from actively managed funds. The younger Johnson has outlasted several senior executives who were seen as candidates to lead the family-controlled firm run by her father for 35 years.
“It really does suggest she’s not simply adding more reins but about to take the reins of Fidelity itself,” James Lowell, editor of Fidelity Investor, an independent newsletter in Needham, Massachusetts, said in a telephone interview.
Ned Johnson, known for avoiding the public spotlight, had kept investors, employees and the media guessing as to who would take over in the event of his retirement or death. At various times, Robert L. Reynolds, a former chief operating officer, and Ellyn McColgan, a former head of mutual-fund sales, had been considered possible leaders at the firm.
“I had the top job at Fidelity, but not the top job,” Reynolds said in a 2008 interview. “And when I asked my parents, they wouldn’t let me change my name to Johnson.”
Reynolds, now president and chief executive officer of Boston-based Putnam Investments LLC, today said Abigail Johnson’s appointment was “well deserved and about time.”
Ned 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 been exposed to everything she could be exposed to at Fidelity,” John Bonnanzio, editor of Fidelity Insight, a independent newsletter based in Wellesley, Massachusetts, said in a telephone interview. “I’d have to say, yes, she’s ready for this job.”
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.
Abigail Johnson ranked ninth in March on Forbes’s list of billionaires whose fortunes came from private U.S. companies, with an estimated net worth of $10.3 billion.
“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.
“I honestly think Ned will be more and more a listener, and not a dictator of his own demands,” said Lowell, who is also chief strategist at Adviser Investment Management Inc. in Newton, Massachusetts.
Abigail Johnson first interned at Fidelity in 1980, the summer before she enrolled at Hobart and William Smith Colleges in Geneva, New York, where she majored in art history. Like her father she has long guarded her privacy.
“We’ve been asked by her not to talk about her time here,” art history professor Elena Ciletti said in 2004 when contacted by Bloomberg News.
After graduation, Johnson spent two years at Booz Allen Hamilton Inc., the consulting firm where she met her future husband, Christopher McKown. She earned an MBA from Harvard Business School in 1988.
She was mentored in her early career at Fidelity by fund manager Harry Lange. In April 1993, she was named to head her first diversified stock fund, the Dividend Growth Fund (FDGFX), which she ran for almost a year, beating the S&P 500 by 11.6 percentage points.
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.
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. (BLK), 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.
“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 is seeking to be 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.
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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