Abigail Johnson takes Fidelity on covert new road
The enigmatic granddaughter of the firm's founder is busy trying to revive its fortunes
When Abigail Johnson began her apprenticeship at Fidelity Investments 25 years ago, the Boston-based firm founded by her grandfather was the nation's biggest mutual fund company and star manager Peter Lynch was enjoying a performance streak at the Magellan Fund - a 29 per cent average return over 13 years - that ranks among the best in the industry's history.
The firm has in the meantime become America's biggest administrator of 401(k) retirement plans and one of its largest discount brokers, offering clients hundreds of funds in addition to its own.
Few people outside Fidelity know what Johnson plans to do to turn around the 67-year-old firm's fund business. In addition to being the 13th-wealthiest woman in the United States - with assets of US$9.4 billion - Johnson is also among the most mysterious executives in finance.
Fifteen months after being named president, in charge of all of Fidelity's key business units, she has said nothing publicly about her vision or goals for the company. She declined to grant an interview and has rejected all such requests.
The challenges Johnson faces are clear without her enumerating them. Assets in Fidelity's actively managed stock funds fell 16 per cent in the past five years, and management and advisory fees were down an estimated 13 per cent. Operating profit for all of Fidelity fell 31 per cent last year to an estimated US$2.3 billion.
Near-zero interest rates have forced the company to waive fees for managing the US$427 billion in its money market funds to keep the funds' returns positive.
In April, Standard & Poor's lowered the outlook for the ratings on Fidelity's long-term debt to negative from stable.
And Fidelity is the last of the big money management firms to take advantage of one of the most significant developments in personal finance: the shift into exchange-traded funds, which trade like stocks and were first offered in the US in 1993.
Donald Putnam, a co-founder of Grail Partners, which invests in money managers, said Johnson clearly needed to shake things up if Fidelity was to be a leader in investment management again.
"Since the 1980s, I don't believe there's been a significant strategic development at Fidelity," Putnam said. "I'm not saying it's not a good company, but as a strategic matter, it has long since lost its way."
Ronald O'Hanley, the head of asset management at Fidelity, said his boss was taking action. He said she was behind Fidelity's effort to raise its fee income with a service in which Fidelity advisers would help clients set up portfolios made up of mutual funds, ETFs and other investments that were customised according to their appetite for risk.
O'Hanley said Johnson was also driving Fidelity's recent push to sell its products through social media.
As for ETFs, he said Fidelity, which already sells other firms' ETFs through its brokerage arm, would soon begin offering Fidelity-branded funds in collaboration with BlackRock, whose iShares ETFs dominate the market.
Still, Johnson has given no indication she intends to fundamentally change the Fidelity that her father built, a company that earned more than half of its estimated US$13.24 billion in financial services revenue last year from administering brokerage accounts, pensions and 401(k) retirement funds.
In a rare speech at a Miami conference in 2010, before she ascended to the presidency, Johnson said she was especially fond of the non-investing side of the firm.
"I like analysing and managing large-scale transaction-processing platforms, record-keeping administration and brokerage trading services," she told the audience, according to the .
Johnson would need to articulate a broader mission than she had publicly, said James Lowell, a financial adviser and editor of the independent newsletter.
That task required her to be a more visible and dynamic leader, Lowell said.
What’s required is a sense of stewardship and a long-term view, which she brings
"She's clearly competent," he said. "What's also required is a more-defined form of leadership. You can't be an amorphous, faceless place."
The fact that Johnson is a quiet person who does not make herself the face of the company should not be held against her, O'Hanley said.
"Abby's not a yeller. She's careful to listen to others and let others speak and absorb what they have to say. In my mind, that's just a much more effective leadership style in a company that has so many ways of touching customers," he said.
Don Phillips, the president of research at fund tracker Morningstar, who has followed Fidelity for more than 25 years, said Fidelity did not need a "hero CEO" to address its recent financial difficulties.
"I don't know that Abby needs to reinvent the business the way her grandfather or father did," Phillips said. "What's required is a sense of stewardship and a long-term view, which I do think she brings. For her to pretend to be something she's not would fall flat."
No one outside the family is in a position to dislodge Johnson. She owns about half of the family's shares in FMR, Fidelity's holding company, according to regulatory filings.
The family's stake totals 49 per cent, with the rest of the shares held by former and current employees. Based on a comparison with publicly traded peers, Fidelity is worth about US$32 billion.
Combined with her holdings in Fidelity International and other enterprises, Johnson's net worth is estimated at US$9.4 billion. Her 83-year-old father, who remains chairman of the company, was worth an estimated US$6.4 billion.
She ranks No13 among women in the Bloomberg Billionaires Index, and she is the only one of the 13 whose fortune is in finance. She ranks No124 on the overall billionaires list.
