BOSTON - Fidelity has no plans to reopen Magellan Fund to future defined contribution clients, said Robert C. Pozen, president and chief executive officer of Fidelity Management & Research Co., investment adviser to Fidelity's funds.
The $62.9 billion mutual fund, the world's largest, will close to all investors on Sept. 30, except those from 401(k), 403(b) and 457 plans that offer the option as of Sept. 30.
Mr. Pozen doesn't seem worried that the move will hurt Fidelity in the defined contribution marketplace.
"We feel we provide 401(k) plans with a broad array of options and lots of suitable choices - the Blue Chip, Growth & Income and the Capital Appreciation Fund," Mr. Pozen said.
"There may be some corporations on the margin that will feel like they want Magellan and won't hire us because they can't have it. But I don't think that will be many plans."
And even though Fidelity's identity has been tied closely to that of the flagship Magellan Fund, most observers don't think the firm's ability to compete will be harmed.
About 60% of Magellan's assets come from defined contribution plans, Mr. Pozen said. More than 2,600 defined contribution plans offer Magellan as an investment option.
Both Mr. Pozen and Magellan's portfolio manager, Robert E. Stansky, stressed cash flow control is the primary reason the fund is closing.
"The problem is cash flow relative to (Mr.) Stansky's style. He has a deliberate investment style and it's hard to handle big swings of assets, say $700 million a day in and $700 million a day out. . .. With a partial closing, we're trying to match the outflows with the inflows and are aiming for no big ins or outs," said Mr. Pozen.
The erratic cash flow comes from the retail side, not from defined contribution plans, he noted.
Messrs. Stansky and Pozen said they had been discussing closing Magellan since Mr. Stansky assumed management of the fund last spring. Peter Lynch, Magellan's legendary former portfolio manager, supported the decision, said Mr. Stansky.
Magellan's longtime defined contribution plan clients support the decision as well.
"It's a very positive move and Sprint supports it," said Randy Parker, director-corporate benefits planning/strategy at Sprint Corp., Westwood, Kan.
"Magellan has been an investment option in our plan since 1984. Those individuals in our plan who invested in Magellan since that time have reaped the benefits of its success, but they've also seen changes in the managers of the fund and in the investment philosophy," said Mr. Parker.
Participants in Sprint's $2.5 billion defined contribution plan have 22% of their assets in Magellan; eight other options are offered.
But one administrator of a large defined contribution plan, who asked not to be named, was surprised.
"I had discussions with Fidelity less than a month ago, when they said adamantly that they had no plans to close Magellan," the administrator said.
Participants, meanwhile, don't seem worried.
Paul L. Brunswick, vice president and chief financial officer at Goodmark Foods Inc., Raleigh, N.C., said: "I think the average participant wouldn't know what to make of this, anyway."
"Our phone has been very quiet," said Robert Lyter, director of employee benefits at IMC Global Inc., Northbrook, Ill.
Seven of IMC's nine 401(k) plans offer the Magellan fund as an option.
"I think once plan participants heard that Magellan would still be open to institutional clients, they were reassured," Mr. Lyter said.
Magellan's dominance has been flagging in the past few years. Even slow-to-move defined contribution plan investors seemed to be transferring money out of Magellan and into other, better-performing funds, such as Fidelity Growth & Income and Equity-Income.
Growth in defined contribution plan assets in Magellan slowed to just 4% last year (the latest available data), a dizzying drop from the 50%-plus annual growth rates of previous years, according to Pensions & Investments' survey of the funds most used by defined contribution plans.
Consultants believe many defined contribution plans converting to Fidelity in recent years either skipped Magellan completely or made sure there was a good alternative in the same asset class.
"Not many of our (midsized) clients use Magellan, anyway, because the style drift (from small-cap growth to large-cap) has been so bad," said Bill Schneider, managing director of DiMeo Schneider & Associates L.L.C., Chicago.
"Some 401(k) plan sponsors kept Magellan because of the magic of the Magellan name, not because it still fit any style considerations."
Robert Reynolds, president of Fidelity Institutional Retirement Group, said: "Ten years ago in the formative years of 401(k) development, Magellan's reputation opened doors for Fidelity. But it was probably more the development of strong record-keeping systems in recent years that has helped us win and retain 401(k) plan business. The 'branding' has moved from Magellan to Fidelity."
