BOSTON With Ellyn A. McColgans recent elevation as Fidelity Investments distribution czar, observers say the Boston-based giant may have finally found a leader in the hard-driving, passionate mold of Edward Ned Johnson, Fidelitys 76-year-old chairman and chief executive officer.
Whether Ms. McColgan will remain focused on Fidelitys fast-growing non-money management businesses or eventually step in to turn around the groups bread-and-butter mutual fund operations remains an open question.
The latest data to emerge last week seem to bolster the argument that Fidelity should be devoting its top management resources to its investment operations. On April 26, Ms. McColgan announced that the Fidelity Brokerage Co. she has been leading as president saw total client assets under administration reach a record $1.77 trillion in the first quarter, up 19% from the year before. By contrast, on the same day, Boston-based Financial Research Corp. reported Fidelity garnered only $172 million in net stock and bond mutual fund inflows for March, a fraction of the $7.2 billion pulled in by the American Funds family of Los Angeles-based rival Capital Group. For the first quarter, Fidelitys stock and bond funds pulled in $5.4 billion, less than half its take for the year-earlier period.
Longtime Fidelity watcher Jim Lowell, editor of the Needham, Mass.-based independent newsletter Fidelity Investor, says hes convinced Ms. McColgan is being positioned to lead the investment division as well.
Knowing the kinds of issues (facing the investment division) and the necessary fixes that have to take place very quickly, and knowing Ellyns history of executing extremely well in difficult situations, theres no doubt in my mind that thats why she was the story in Fidelitys April 19 announcement of top-level executive appointments.
The other story of that announcement was the retirement of the executive overseeing Fidelitys investment revamp, Vice Chairman and Chief Operating Officer Robert L. Reynolds, long seen as a possible heir to Mr. Johnson.
Mr. Reynolds became point man for investments only four months ago, when Stephen P. Jonas retired after 18 months as executive director of the firms investment management organization. Fidelity said Mr. Reynolds wouldnt be replaced, effectively removing a second layer of management from its investment management division in four months, even as it was adding a layer to its non-money management operations with Ms. McColgans new position as president, distribution and operations.
Some market watchers predict Mr. Reynolds will be sorely missed. At a firm where Mr. Johnson is famous for making change after change until he finds a solution that works, some saw Mr. Reynolds as a needed buffer a steady, reassuring presence at a time of considerable turmoil in Fidelitys top management ranks, according to one executive recruiter, who declined to be named.
By contrast, ex-Fidelity executives use terms like hard charging and tough cookie, to describe Ms. McColgan, who wasnt available for interviews last week.
With the departures of Messrs. Jonas and Reynolds, the investment side will now be led by a team of three executives reporting directly to Mr. Johnson: Walter C. Donovan, president of the equity division for Fidelity Management & Research Co.; Boyce I. Greer, president of the fixed-income division; and Dwight D. Churchill, president of investment services.
Fidelity spokesman Vincent Loporchio said the latest executive suite changes arent significant for the leadership of Fidelitys investment division, which has always reported in to Mr. Johnson who remains the lead executive directing vision and strategy there.
Wait and see
Following a series of recent top-level changes, middling investment performance and full-speed-ahead campaigns to rebuild the mutual fund research organization and set up a separate institutional asset management arm, some market watchers said theyre in a wait-and-see mode.
Steve Charlton, a managing partner with Cambridge, Mass.-based New England Pension Consultants, said his firm supports Fidelitys efforts to rebuild their franchise and improve fund performance. While Bob Reynolds decision to retire so soon after taking responsibility for the investment-management group raises some concerns, our interests and those of our clients are aligned with theirs in hoping they achieve the desired turnaround.
Fidelitys Mr. Loporchio declined to comment on speculation that Ms. McColgan could eventually be tasked with revitalizing Fidelitys investment arm, saying she is focused on her newly expanded responsibilities involving distribution and operations.
Market watchers say figuring out which way privately held Fidelity is moving is somewhat akin to the Soviet-era art of divining policy implications by watching who was standing next to whom on the walls of the Kremlin.
For some observers, the emergence of a non-investment person like Ms. McColgan as a potential successor to Mr. Johnson is just another sign that Fidelity is betting its future on fast-growing distribution businesses, including 401(k) administration and brokerage operations, which dont rely on a proprietary mutual fund arm.
A former Fidelity executive, who declined to be named, said its been clear for years that Mr. Johnson is counting on those distribution-related businesses for a major, major part of Fidelitys long-term growth.
Just look at where the company is deploying its capital, as well as its hardest-driving executives such as Ms. McColgan, said Donald H. Putnam, managing principal of financial services investment advisory firm Grail Partners LLC, New York. Even as Fidelity works to bolster its money management operations, open architecture is likely to be more central to the organizations future, he said.
Mr. Loporchio said mutual funds remain Fidelitys core business, and complementary to its other businesses. Investment management fees have continued to deliver roughly half of the groups revenue over the past few years, he said.
Could be worse
Aaron Dorr, a managing director at New York-based investment bank Putnam Lovell NBF, said while Fidelity is now as much a distribution company as it is an asset management company, the challenges it faces arent as dramatic as those which led Merrill Lynch & Co. and Citigroup Inc. to sell off their asset management units in recent years. Even if performance has come off the boil of late, Fidelity remains a wildly successful company by any measure a big machine with lots of growth engines, he said.
Mr. Loporchio said Fidelitys continued commitment to investment shows in its aggressive hiring over the past two years: The firm added 90 analysts on the mutual fund side, doubling its research line-up there, and 35 investment professionals at Pyramis Global Advisors, the institutional asset management arm Fidelity is setting up in Smithfield, R.I.
Executive recruiters say that breakneck hiring pace could prove unstable. Fidelity and Pyramis have been hiring people in clumps a binge that might ultimately compare unfavorably with blue-chip firms that take months and months to find individuals who can thrive in their particular corporate culture, said one veteran recruiter, who declined to be named.