Fidelity makes institutional business push

Fidelity Investments, best known as one of the world’s biggest mutual fund companies, is making a big push into institutional business where it expects to quadruple its funds under management.

Drew Lawton, the chief executive of Fidelity Management Trust Company, which holds the $100bn institutional business, said on Wednesday he saw no reason why the business should not grow to between $300bn and $400bn in three to five years.

“We shifted our emphasis to this space about six months ago because institutions seemed to be focusing more on macro issues such as funding and liabilities, and they are looking for broader-based firms such as Fidelity for that,” he said.

Mr Lawton said the institutional business had added 30 to 40 people in the past six months as it geared up for growth. It now employs about 300, and recently set up a new institutional equities arm, Pyramis. Fidelity already manages another $1,000bn in mutual and money market funds.

The group also wants to add strategies such as port-able alpha, the latest buzz-word in institutional management, which allows a customer to take above-benchmark returns from one asset class and graft it on to another. It was also adding alternative asset strategies such as leveraging, but would not offer hedge funds as such, said Mr Lawton.

He said proposed changes to pension accounting, which are under consideration by the Financial Accounting Standards Board, would result in shifts in money in the industry, both among managers and among strategies, as pension funds reviewed their plans.

Among other things, funds may be required to shift their accounting to a “mark to market” system which more closely reflects their liabilities.

“There will be a high velocity of money as a result of these changes . . . long-duration bond strategies will become more attractive,” he said.

Fidelity on Wednesday released the results of a survey that showed funding levels for defined benefit plans have improved in the past three years, in spite of the
recent big pension bank-ruptcies.

In 2002, only 13 per cent of plans were more than 90 per cent funded, but by last year this had risen to more than 75 per cent of plans.

The median plan also outperformed the major indices in the five years to December 2004, the survey showed.