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‘Ned’ Johnson stepping down as Fidelity chairman

Edward C. “Ned” Johnson 3rd, widely considered a giant of the investing world, will retire next month as chairman of Fidelity Investments, a Boston firm he took over from his father 39 years ago and built into a powerhouse that oversees the retirement savings of 25 million Americans.

Johnson, 86, will hand full control of Fidelity to his daughter, Abigail P. Johnson, who was promoted to chief executive in 2014, the company said Monday. In an e-mail to employees, Edward Johnson said this was a “natural progression’’ in his daughter’s 28-year career during which she was groomed to run the privately held company.


The long-expected transition marks the end of an era for the company, which rode to prominence with the success of stockpickers such as Peter Lynch. It comes as Fidelity, which manages $2.1 trillion, faces an investor shift from its actively managed funds to the less-expensive index funds of rivals such as Vanguard Group.

John Bonnanzio, a longtime observer of the firm and editor of the independent Fidelity Insight newsletter in Wellesley, credits Johnson and Vanguard founder John Bogle with creating the modern mutual fund industry.

“Clearly, what he has built is a very successful juggernaut,’’ said Bonnanzio.

However, he said Johnson failed to foresee that Bogle’s investment approach — using funds that mimic the performance of indexes rather than trying to pick individual stocks — would come to dominate the landscape.

“He and others have been wounded in recent years by” the popularity of indexing, Bonnanzio said.

Fidelity said Johnson is not leaving because of failing health. But people who know him say the executive — known for an obsession with diet and exercise — has been slowing down.

He has long shunned press coverage and imbued Fidelity and his closest confidantes with a regard for privacy that’s akin to Britain’s royal family.


Vanguard now manages nearly $3.3 trillion in mutual funds and exchange-traded funds, according to Morningstar Inc. in Chicago. Fidelity ranks a distant third, with $1.2 trillion, behind American Funds.

Johnson ran Fidelity in a fashion that rewarded performance and often pitted top executives against one another. He had an uncanny ability to simultaneously wield power, harness large egos, and nurture new ideas.

Robert Pozen, a former chief of Fidelity’s mutual funds who reported to Edward Johnson, called him “one of the most brilliant innovators and investors of the 20th century.”

Johnson also negotiated with Massachusetts officials to gain tax breaks, and eventually sought to save more money by moving some operations out of Massachusetts to New Hampshire and Rhode Island, as well as to lower-cost locations such as Covington, Ky.

On the federal level, the company has battled industry regulations Johnson considered heavy-handed, including a rule requiring companies to name independent heads of mutual fund boards, and changes put in place since the financial crisis to strengthen the security of money market funds.

Fidelity had just $3.9 billion in assets in 1972, when Johnson took over from his father, who founded the company in 1946.

Today, Fidelity is one of the world’s biggest managers of retirement funds. It pioneered low-cost brokerage services, and over the years has launched a slew of other offerings — from human resources administration and charitable gift funds to investing apps.

The billionaire businessman will become chairman emeritus, but won’t serve on the seven-member board.


“Although I am retiring, I am not saying goodbye,’’ Johnson said in the letter to employees. “I will become chairman emeritus, maintain office hours . . . and continue to consult periodically with Abby and Fidelity’s board of directors.”

A Harvard College graduate, Johnson joined the firm as a research analyst in 1957. He managed Fidelity Trend Fund from 1958 to 1967 and was the Fidelity Magellan Fund’s first portfolio manager, from 1963 to 1971. He was named president of the company in 1972 and chairman in 1977.

Johnson’s wealth is estimated at $7.1 billion, making him the 68th richest man in America, according to Forbes magazine’s latest ranking. His daughter, who for several years has owned a larger share of Fidelity, is worth $13.2 billion, enough to rank at No. 29 on the list.

Over the years, Edward Johnson has put his fortune to use for civic causes and arts philanthropy, donating millions from his nonprofit foundations to the region’s hospitals and arts institutions, notably the Museum of Fine Arts in Boston and the Peabody Essex Museum in Salem. But in classically understated Yankee fashion, he has never put his name, or his family’s, on the gifts.

Johnson also is one of the city’s largest art collectors, a passion he has pursued outside of the limelight.

His successor, 54-year-old Abigail, favors her father’s penchant for privacy, although in recent years she has made more public appearances.

At a 2012 Greater Boston Chamber of Commerce event honoring her family, she recalled her father being so devoted to customer service that he would take calls from clients during family dinners when she was growing up.


Now she’s about to assume full control of a company with 45,000 employees worldwide, including 5,000 in Massachusetts. Her father’s retirement could spur new questions about Fidelity’s future, and whether it will remain independent under the third generation of Johnsons.

In Abigail Johnson’s time as chief executive, assets in its flagship mutual funds have declined. She has undertaken a number of efforts to catch up, including launching exchange-traded funds, and recently cut fees on its index funds and exchange-traded funds to make them lower than Vanguard’s.

“The retirement of Ned Johnson is more symbolic than a changing of the guard at Fidelity,’’ said Mark Williams, a finance professor at Boston University. “Although Abigail has been running the day-to-day operations for many years, this official retirement will allow her to step out from behind the shadow of her iconic father and officially define the company to her own liking.”

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.