BOSTON - Mutual fund behemoth Fidelity Investments Inc. is pouring new energy into an old arena: defined benefit separate accounts.
It's also dedicating more investment staff to the area.
Fidelity has created a new institutional investment management team whose sole focus is on developing and managing institutional investment strategies. The new group will serve as an additional resource in managing separate accounts as Fidelity has traditionally had portfolio managers that oversee both institutional and mutual fund assets.
"We don't want to consume more time of the mutual fund managers," said John McNamara, president of Fidelity Management Trust Co. "It's not practical to add more accounts to the portfolio managers." FMTC is the defined benefit arm of Fidelity, with about $71 billion in assets under management as of Dec. 31.
The renewed emphasis on defined benefit plans will include a new line of institutional strategies and a sharper focus on client service and consultants, he said.
To increase its presence in the defined benefit market FMTC has:
* launched a new separate strategy exclusively for institutional investors;
* created a defined benefit client service group;
* bulked up its consultant-relationship division; and
* instituted a commission recapture program for clients.
Last year, Fidelity hired Philip Bullen to head the institutional group. He had been president, chief investment officer and founding partner of the now-shuttered Boston office of Santander Global Advisors. Mr. Bullen was brought in to develop new institutional investment strategies for the defined benefit and defined contribution markets.
The first new separate account strategy produced by Mr. Bullen's group, active large-cap growth domestic equity, was rolled out in December. The strategy is managed by a team led by Mr. Bullen that consists of people promoted from within and brought in from the outside. Earlier this year, said Mr. McNamara, the group landed its first client, whom he would not name.
Mr. McNamara said the goal is to eventually develop a full suite of strategies aimed specifically at the defined benefit market. "What we're attempting to do is to build products that are focused primarily on the institutional marketplace to complement the line of products that we already have in place
Consultants say the defined benefit operation at Fidelity in recent years has been overshadowed by retail and defined contribution efforts. "I think they are now focusing on an area of the business where they think their size, reputation and expertise should earn a bigger share of the business than they've captured to date. It represents an opportunity," said Burton Greenwald, president of B.J. Greenwald Associates, Philadelphia.
Whether it's deserved or not, mutual fund complexes that are primarily retail often are saddled with the reputation of not focusing on institutional investors, said David Brief, director of research at Capital Resource Advisors, Chicago.
At Fidelity, said Mr. Brief, the difference between the retail and defined benefits sides is a case study of the differences between the retail and institutional marketplaces.
"In the retail market you need a good track record and good public relations and assets will flow," said Mr. Brief. On the institutional side, because consultants play such a gatekeeper role, standards are different. One example of the difference between the separate account business and mutual funds is it's necessary to bring out portfolio managers for interviews with defined benefit plan sponsors.
However, he did say that using product specialists or investment directors, as Fidelity does, is a step in the right direction.
"Track records are important, but they're not the only thing," he said. "A lot of times it comes down to personalities. It's really very much a relationship business."
In addition, said Mr. Brief, the institutional arena includes many strong firms that aren't in the retail market, which makes the competition a bit stiffer.
"Many of the strengths that Fidelity uses on the retail side are either less important or don't matter to institutions," added Mr. Brief.
Mr. McNamara said the firm has taken steps in recent months to improve relationships with plan sponsors and consultants. "We want to look at what we can deliver to our clients that adds to the value of the relationships," he said. "We want to deliver value-added service beyond investment performance."
For starters, he said, Fidelity has increased the number of people working with consultants to six from two. This year, said Mr. McNamara, two more will be added. The new positions are designed to increase consultant awareness of Fidelity portfolios. "Consultants are an important part of our business strategy," he said.
Fidelity Management Trust officials also created a client service group, whose only responsibility is serving existing clients on a day-to-day basis.
In addition, he said, FMTC is encouraging sales staff to get certified as chartered financial analysts so they understand what they're selling and can offer solutions to plan sponsors' problems, rather than just pushing products on them.
Consultants agree Fidelity's presence in the consultant community has increased. "The organization is out there," said Mr. Brief. "They have very good consultant relations people." Jeff Nipp, a consultant at Watson Wyatt Worldwide in Atlanta, agreed FMTC has stepped up its marketing efforts to consultants.
Thomas Dodd, principal at Stratford Advisory Services, Chicago, said Fidelity has had some problems with style drift, a turnoff for institutional investors.
Mr. McNamara said a number of issues, such as style drift concerns, are being addressed in the launch of the institution-only strategies.
Another concern expressed by Mr. Dodd is the lack of transparency. In his experience, he said, Fidelity has not offered consultants and plan sponsors the opportunity to review and discuss current portfolio holdings. "That's something they'll have to change to have a bigger impact in the defined benefit marketplace," he said.
Kent Novell, principal with Boston Research Group, Woburn, Mass., suspects Fidelity will be successful in the defined benefit arena. "They've certainly got good managers and a good money management track record. I suspect it will be like the 457 market for them. They were out of it and then all of a sudden, they were in it."