Whatever happened to Fidelity?
Back in the ‘70s and early ‘80s Fidelity Mutual Funds were the “it” thing, the bee’s knees, the most exciting thing to happen to investment management since the stock exchange. Magellan Fund manager Peter Lynch was a rock-star. He generated huge crowds whenever he spoke. All the hot money managers wanted to work there, and they seemed to have discovered the secret sauce of success: hire a bunch of bright, young, b-school graduates, sift them ruthlessly to find the most talented and hard-working, and reward those lucky enough to get through the meat-grinder so they would never leave.
But then the music stopped. There was a scandal or two at Magellan after Lynch left, and the wind went out of the fund company’s sails. While managers like Vanguard or Blackrock or PIMCO have rocketed ahead, doubling assets and revenues over the past decade, Fidelity has been lucky to tread water. And innovation? Of the 1300 ETFs now offered to investors in the US, Fidelity manages only one.
What went wrong? Partially, investment management is a dynamic, quickly-shifting business. It has always attracted talented, hard-working people. There’s no way for one firm to scoop up all the best. And any large company will eventually hire and promote a few duds along the way. Also, huge organizations often struggle when leadership is limited to a single founding family, like Fidelity’s Johnsons. They’re now passing the torch to the third generation, and that can be tricky. But maybe the internal contradictions of the mutual-fund business are part of the problem: high fees that upstarts can undercut, and a highly-regulated open-ended retail business where compliance only grows more complex and costly every year.
Don’t expect Fidelity to go down in flames. They avoided the market-timing scandals a decade ago, and they still have over a trillion dollars in unlevered assets. But in an industry that celebrates the new new, this 68-year old firm can’t seem to get past its own midlife crisis.
Douglas R. Tengdin, CFA
Chief Investment Officer