O'Sullivan Wealth Management Investment Update - Changing of the guard

Feb 11, 2019 | Kevin O'Sullivan


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Abigail Johnson’s strategy was to encourage Fidelity's managers to be more aggressive, though admitting it was a chancier bet...

I would like to make note of the passing of one of the most influential people in the history of modern investing. John (Jack) C. Bogle passed away in January at the age of 89. Mr. Bogle was the founder of Vanguard Investments which created one of the first index funds. This structure allowed retail investors low cost access to broadly diversified investment portfolios.

 

The world is full of interesting people with equally interesting stories. Mr Bogle was certainly one of them.

 

Not far from Vanguard’s head office in Pennsylvania is another industry giant, Fidelity Investments. Based in Boston, Massachusetts, Fidelity was founded by Edward C. Johnson II in 1946. The firm started as a research company and soon branched into money management, offering mutual funds. Edward Johnson’s son, Edward (Ned) Johnson III succeeded his father in 1977 when the elder Johnson retired. More recently, Ned’s daughter Abigail took over as CEO in 2014, and was named chairman in 2016 at the age of 55.

 

Fidelity is a private firm, with the Johnson family owning the majority of the shares. It’s tempting to look a family run business and attribute the rise of family members to nepotism or favouritism, but in Ms. Johnson’s case her rise in the business hierarchy was due to a dedication to her craft, and a commitment to growing the business. During high school, she spent time in the family business by working the phones in the customer service department. Upon graduating from college she briefly worked as an investment analyst at another firm, before completing her MBA at Harvard in 1988. She then went to work at the family firm, working her way through unglamorous roles to progressively more senior positions.

 

In 1998 Abigail was promoted to senior vice president. At this time she was also married, and a mother of two. Her husband, Christopher McKown, is a health-care information company founder and president.

 

In 2001, Fidelity announced that Ms. Johnson would be appointed to the role of President of the company’s mutual division. This put her in the number 3 position at the company, with only the chief operating officer Robert Reynolds and her father, Ned, ahead of her. 2001 was a difficult time, as the markets had just come off a historic bull run and entered a period of decline that would continue for several years. Still, Fidelity was a global powerhouse with a strong brand, and $1.4 trillion in assets worldwide. The firm’s trading decisions had a noticeable impact on the markets around the world.

 

Abigail’s entrance into the senior ranks of the company brought changes in style. While her father was an adherent of a Japanese management theory which emphasized growth through small increments, and is a collector of Asian art, she would combine patience with aggressive cutting edge moves when required, and is known to prefer modern art.

 

Fidelity’s active investment style is characterized by breaking away from benchmarks. Often portfolio managers make aggressive bets rather than following indices. Abigail’s strategy was to encourage the managers to be more aggressive, though admitting it was a chancier bet. She once stated that it is never apparent what a smart risk was, which was why they hired smart people to make those decisions.

 

But Fidelity has not completely shied away from the indexing business, and has recently been making news with its introduction of zero–fee index funds. Ms. Johnson has also been making an impact with her firm by strategically prioritizing women, and in doing so, making a move to get ahead of the ~$ 22 trillion shift in assets to this financially powerful demographic segment.

 

The company is one of the largest investment management firms in the US, with ~$2.5 trillion in assets under administration. By comparison, Vanguard has ~$5.1 trillion in AUM, while the largest firm, BlackRock, manages ~$6.3 trillion in AUM.

 

Despite her status in the finance industry, Abigail maintains a low profile, seldom granting any interviews. She owns roughly 25% of the firm, and has a net worth of ~$15 billion, making her one of the wealthiest women in the US, and certainly one of the most powerful women in business. She continues to work 11 hour days, and she then goes home to her grandfather’s former home in Boston. She and her family also spend time on Nantucket Island during periods of down time.

 

As one of the few prominent and powerful women in the field of investments, leading one of the world’s dominant investment firms, she is considered by her peers as cool, calm, and hard working. Not what one would expect of one of the richest people on the Forbes list.

 

With the passing of a giant in the investment world, the focus turns to the next generation of leaders. Fidelity’s Abigail Johnson carries this torch, while blazing her own trail.