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Rating:Fidelity Made Big Changes in '05, Says Deputy Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, April 04, 2006

Fidelity Made Big Changes in '05, Says Deputy

by: Marie Glancy

Even Fidelity bosses must sometimes make tough decisions. So it appears from a top executive's recent admission that, a year ago, poor fund performance spurred the company's leadership to undertake a major reconfiguration.

According to an article in the Wall Street Journal, Fidelity Investments chairman Edward C. Johnson III and Robert Reynolds, his chief deputy, took action when it became apparent that several of the company's stock funds, including the $50 billion Magellan Fund, were failing to meet their established standards of performance relative to competitors. Their solution included rethinking the traditional hiring tactics of their stock-picking and research group, and moving Johnson's own daughter, Abigail Johnson, to a post outside the mutual fund unit.

Both Ned and Abigail Johnson declined to be interviewed for the WSJ story, but Reynolds explained that his boss was determined to institute necessary changes, and doubted whether Ms. Johnson was ready to follow a radically new course of action.

According to Financial Research Corp., Fidelity's investors redeemed more from the firm's U.S. stock funds than they invested, for the first time ever in a year without a market collapse. While still formidable, the company's market share is only about three-quarters of what it was a decade ago.

Some doubt whether this degree of decline is anything but inevitable. "Change is always met with some kind of skepticism," said Reynolds.

Johnson and Reynolds decided that they needed to show greater commitment to stock analysis by hiring research specialists for career postings. Later, based on feedback suggesting analysts were expending effort to impress fund managers, they changed their system of evaluation. Instead of being reviewed by portfolio managers, the analysts must now measure up according to the successes of their stock picks. In addition, a new compensation schedule for fund managers looks more towards long-term results against the market.

 

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