The History of Fidelity Investment

Boston-based Fidelity Investments is a family-owned investment company founded in 1943. As an investment house it provides brokerage services, mutual funds portfolios, wealth management, life insurance and retirement fund management among other services. The company is the largest mutual fund company in the United States with about $1.25 trillion in assets. In recent years it has performed with mixed results and has gone through management shakeups.

Founding

Fidelity Investments can trace its history to 1930 when the Fidelity Fund was founded. In 1943, Edward Johnson II assumed control of the company and three years later established the Fidelity Management & Research Company, which remains today an independent arm of Fidelity Investments. He brought his son, Edward Johnson III, into the company in 1957 and handed over leadership responsibilities to him in 1977.

Kaizen

The elder Johnson was influenced by Eastern philosophy and its approach to management. The younger Johnson has continued with Kaizen, a Japanese philosophy that gained popularity in early postwar Japan that places an emphasis on continuous improvement in the workplace as well as in life. Edward Johnson II has applied the Kaizen philosophy of incremental, but sometimes risky, improvements with the goal of long-term success.

Son's Rise

Edward Johnson II, a Harvard graduate, became Fidelity's portfolio manager in 1960, then moved to supervise the company's Fidelity Magellan Fund in 1963. He remained there until he was named chairman and chief executive officer in 1977. He was previously named president in 1972.

Growth Years

Under the younger Johnson, Fidelity grew dramatically to 23 million investors after 2000. He diversified Fidelity with such acquisitions as a luxury hotel, an employment agency, a chain of community newspapers it has since sold; a limousine service; and Pro-Build Holdings, which operates a large distribution network of lumber and building products.

Private Company

Johnson continued the company's diversification through the 1990s, insisting that Fidelity remain a private company to protect it from market pressures while at the same time improving its infrastructure with new technology. He also branched out by offering brokerage services to the private investors, banks and insurance companies.

All in the Family

By 1988, Johnson had brought in his daughter, Harvard MBA-educated Abigail Johnson, to serve as an equity portfolio manager. She was named president of Fidelity Management & Research in 2001 until moving over to Fidelity Retirement Services in 2005. Although long considered the heir apparent to the company, her father in 2007 unexpectedly announced she was not guaranteed the job.

Trouble

Johnson, who has a reputation for shaking up his management, hired Rodger Lawson in 2007 as president of FMR, which was once Abigail's job. Johnson also forced the resignation of mutual-funds head Ellyn McColgan, who was once in line for the chief executive spot. Meanwhile, the banking crisis affected Fidelity's revenues, which plummeted from $10.5 billion in 2004 to $2.36 billion in 2008. Its total assets dropped from $1.37 trillion to $1.25 trillion. Customers in 2008 withdrew $34.2 billion from its stock funds and Standard & Poor's cut its credit rating to A+/A-1.

Resources

• Fidelity Investments history