Can we finally call it Abby Johnson’s Fidelity Investments?
This question popped into my head when I heard about the departure of Ron O’Hanley as the top asset-management executive at Fidelity last week.
O’Hanley, who arrived at the Boston company in 2010, enjoyed equal executive footing with Johnson until she was promoted to president in the fall of 2012.
Now he’s headed for the door, and she will surely play a leading role in selecting the next person to oversee Fidelity’s vast portfolio of mutual funds and other investment products. In a memo to employees last week, O’Hanley made a point of saying “the leadership transition to Abby as president is complete.”
Abby-watching has been a familiar activity in this space for many years, tracking a quarter century of executive grooming in what is fundamentally a family business founded by her grandfather and grown into a financial giant by her father. She always seemed likely to take over eventually, but not a lock until her last promotion to president.
Ned Johnson, Abby’s father, is still the chairman and chief executive of Fidelity and remains an active figure. But he is also 83 years old. This is Abby Johnson’s time, or darn close to it.
Fidelity isn’t just another business dominated by its founding family. It’s one of Boston’s most important companies and still the local leader in one of the city’s biggest industries. Millions of customers (including me) count on it. The person running the company makes decisions that reverberate throughout Boston and beyond.
It’s easy to think of old family businesses as stories told in generational chapters. But the Fidelity that Abby Johnson, 52, will lead for the foreseeable future is much different than the business that first became famous under her father’s leadership.
For better and worse, Fidelity is a much bigger operation today. The company oversees much more money and has diversified into many other businesses, remaining distinguished for top-notch customer service. But performance — both as a money manager and a seller of mutual funds — is mostly average now at Fidelity. The boldness that once defined the company is hard to see today.
The Abby Johnson era at Fidelity could extend for decades and this issue — managing the challenges and complexity of scale — will probably define it. Risky decisions at such a big firm can be reckless. Excessive caution will turn industry leaders into has-beens.
Consider Fidelity today: It manages more than $1 trillion in mutual funds, a figure that approaches $2 trillion when you add money market funds to the count. It’s the most the company has ever managed.
There are hall of fame investors like Will Danoff and Joel Tillinghast, as well as younger standouts among Fidelity’s scores of fund managers. The company says its aggregate investment performance is strong. But analysts who follow Fidelity’s mutual funds say those overall investment returns are only average.
“The aggregate numbers don’t really make them stand out as a leading fund company,” says Katie Reichart, a Morningstar Inc. analyst who follows many Fidelity funds. “They’re not terrible, but they’re a little more mediocre.”
When it comes to drawing money from investors, Fidelity mutual funds have ranked near the bottom of the industry’s 10 largest competitors. It has attracted less than $9 billion in net sales over the past two years. One solid but smaller competitor, T. Rowe Price, has collected more than $23 billion, and the runaway industry leader, Vanguard Group, pulled in more than $160 billion, according to Morningstar.
Meanwhile, Fidelity has continued to expand into other investment-related
businesses. Many of them are less volatile than money management but offer lower profit margins.
Assets under administration, a calculation that measures Fidelity’s brokerage business and other financial services in addition to its mutual fund management, grew to a whopping $4.6 trillion by the end of last year. It’s the best single number illustrating just how big Fidelity’s other services have become.
This is the business that will become Abby Johnson’s Fidelity Investments soon enough. In the years ahead, Fidelity will no doubt change in big ways. It may come to look more like a giant financial services platform that only happens to manage mutual funds, too.
Ned Johnson had to fight for Fidelity’s survival in the early years of his leadership. Abby Johnson will have to battle the mediocrity trap that comes with the size of a business giant like today’s Fidelity.