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When you think of Fidelity Investments, what comes to mind first?
For some, it might still be Gerald Tsai Jr. or Peter Lynch, the firm’s star portfolio managers of the past. To others, Fidelity is a custodian, a vital partner to their own investment firm. Ask millions of everyday investors about Fidelity and, even as they might struggle to describe the company, they know it—that’s the name at the top of their retirement account statement.
Fidelity is ubiquitous, yet most of its customers and competitors know relatively little about it, and even less about the Johnson family, the founders who still own and run the massive private company.
For years, while reporting for and editing stories about asset managers, Justin Baer, a deputy markets editor at The Wall Street Journal, gathered and confirmed tidbits about Fidelity’s evolution and leaders. Many of those details didn’t fit neatly into articles for the Journal, and so they accumulated into a mountain of stories and insights.
Baer has put all of that into a book out today, “House of Fidelity.”
“For those interested in peeking inside one of the US’s most important financial companies, this book offers a welcome window,” says a Financial Times review.
In this interview with Modus, Baer shares why now was the time to write a book about Fidelity and the Johnson family, how he managed to put readers inside some of the company's most tense moments, and his thoughts on its succession plans.
You wrote in the book that “Fidelity oversees some $18 trillion in assets, earns more annually than BlackRock and helps manage the life savings of one of every five U.S. adults…And yet it remains an anachronism: a privately held business controlled by a deeply private family.” Those sound like more than enough reasons to do the book, but was there any event or moment that pushed you to explore and ultimately do it? I have an editor's favorite question: Why now? There were kind of two big things I was thinking about a lot when I decided to go through with it.
I had started covering them, asset management, and the buy side at The Journal around 2018. Soon thereafter, I started talking to people who worked at [Fidelity], and once in a while, they would tell me something that seemed pretty surprising, frankly. I hadn't heard it before. And then I would go back and see if it had ever been written about or covered in any way, but I couldn't find anything. I would call someone else who had worked in that same business roughly the same time who might have the same window into what was happening, and I would say, “Hey, you know, is this true?” And the person would tell me—you could tell they were kind of shrugging their shoulders—“well, Justin, of course it's true; everyone knows that.”
This was such a big company, had been around for a long time, somewhat insular; there was a lot of stuff that people knew but, for various reasons, had not really gotten out to the broader world. Being able to sort of break into some of those things was very exciting as a reporter to do, even if some of these events had taken place years or decades earlier.
The other thing I sensed when I started covering them was a disconnect between where Fidelity was and the perception of them. Even by very sophisticated competitors and industry players. Fidelity, from the 1940s, had been celebrated as one of the leading managers of stock-picking funds and employed some of the most famous investors, generating returns that were really good, in some cases great. And this business was sort of under siege and slowly but surely maturing. The perception at the time was that Fidelity seemed kind of listless.
Part of it was due to the fact that it is a private company. They were not out there, openly discussing their strategy. There were no sell-side analysts to track that. There were no outside shareholders to complain about that. So as a result, the outside perception was that they were kind of not really going anywhere. As I got to know the company and dug into what they were doing, it became clear that there had, for a long time, been this shift that was underway, and the active management business was no longer this flagship. And maybe it still represented some kind of cultural core, spiritual core of the place, but it was no longer the most important business with respect to where they were headed.
They had become this operator of massive investment platforms that touched people's financial lives directly and not through some intermediary, as you would as an asset manager. That just seemed to be a fascinating story to sort of figure out; how did we get to this point? The beauty, and or rather the appreciation, of Fidelity's game plan is impossible to ignore.
I want to talk a little inside baseball. I know you have to be cautious about your sources for the book. But as much as you can, will you tell me what the Johnson family's reaction was? I haven't revealed at any point who I talked to for this project. I interviewed over 200 people, many of whom agreed to participate only if I didn't reveal their identities. I extended that to essentially everyone that I talked to.
I can't speak directly to their reaction. I can say that throughout the whole project, I knew, at some level, this would be uncomfortable, right? No one wants their lives and their families to be detailed; to be put out there in the world and know that people are reading about it. I always understood that this was not the most comfortable thing for anyone to go through. I always kept that in mind.
In many respects, it was similar to my day job. There are reasons people wish to remain anonymous; you talk through it, negotiate the ground rules, and everyone gets on the same page.
A similar but different question related to Fidelity employees: When you approached those people about the book, what was the temperature like, or level of enthusiasm to share? There were certainly people who did not want to engage in any way at any level. But I was pleasantly surprised by how many people did.
Two things I think were a part of that. The company is doing very, very well right now and in many respects better than ever before. It's always easier—although, in some ways, the opposite may be true depending on the circumstances—for people who have been very proud of their contributions over the years [to come forward]. And I think that that leads to kind of the second point, which is that there was enough collective pride among people who had worked there to believe that the company and the family were worthy of the book treatment.
They understood that it wasn't always going to be great. There were going to be lots of setbacks, challenges and embarrassing scenes that played out on the road to that ultimate success, but it was a big enough and important enough story to tell.
You’ve reported on and edited stories about investment firms, including Fidelity, for many years. While working on the book, did you learn or realize anything about Fidelity, or even, say, the mutual fund industry, that stuck out or surprised you?
Yeah. Maybe this is just relevant because of what's happening with energy prices right now, but I didn't fully appreciate how terrible the investing business was in the 1970s. That long bear market all the way until 1982, in some ways, really remade Wall Street. Everything from May Day and the removal of the peg on stock trade commissions; the massive decline in interest in stocks, in particular stock funds; the birth of the money market fund; and the interest, for the first time, really, among individuals in bonds; and, of course, the birth of discount brokers. Then, a little bit later. ERISA and IRAs. So many things happened that sort of changed the course of the whole industry. Fidelity was definitely in the mix in a lot of those things.
Another really interesting thing that I didn't fully appreciate was the original pitch and concept that Fidelity's founder, Edward Johnson II, built his company around: the idea that portfolio management is a one-person show and that you're essentially an artist or soloist. At the time, that was largely unheard of. Most funds were managed by a group of people.
I thought that was really fascinating, this idea that someone who manages money and manages a mutual fund can be a star. Which, in the years to come, created everyone from Warren Buffett and Bill Gross to the people who are now regularly on CNBC, Fox Business and other networks.
Between now and when I reached out to you about this interview, The Wall Street Journal published a really engaging excerpt. That part felt so emblematic of the complicated dynamics in family businesses, and often in family offices, where personal and professional relationships are tethered together, raising the stakes for all decision-making. So, my question is: Do you think Fidelity Investments is what it is today because it is a family business, or despite it being one? I think largely because [it is a family business].
They're just about to celebrate their 80th anniversary, and in that time, they've been controlled by one family, and they've been led by three people from three successive generations. That kind of stability is very unusual, even among other private companies. I think that being private has been important because it's allowed them not to necessarily have to worry about short-term performance.
It allows them to be patient in many ways that other businesses can’t. I think it becomes very, very difficult if you not only have public shareholders to account for, but also leadership changes and new regimes. And related to that: This is a massive company, and yet they've really never done any major acquisitions that would sort of blend together.
I was a little surprised that Crosby Advisors, a family office of the Johnsons, was, I think, only mentioned once in the whole book. I know that wasn't the focus, but is there anything about it, or family offices in general, on the cutting room floor that you can share? A large part of that is due to the structure of the family's collective businesses. They do have the core financial services business, Fidelity Investments, which includes the asset management, retirement, retail and custody businesses. They have all this other stuff that, I would imagine, for other very wealthy families, might not exist in the same organizational structure as the main business. They have multiple venture capital and private equity portfolios. They own an oil and gas company. They own a very large telecom and data center company in London. They have a massive commercial real estate business. All of those things are part of Fidelity. The family office exists outside of that. It's one of the few things in the family's portfolio that doesn't fit within Fidelity.
Has the book changed how you think about or report on Fidelity or other big investment firms? I would say my appreciation for all the different eras that came before this one.
The New York Stock Exchange [decades ago], running ads about buying your piece of American industry—you can see echoes of those sales pitches today, right? You can see and hear that not only with Fidelity but with everyone, from BlackRock to Robinhood. It's essentially the same message: What was once the domain of the elite and the very wealthy is now accessible to the middle class and to people who historically have not invested.
After spending so much time and energy focused on Fidelity, what are your thoughts about the future of the company? Do you think its prominence will remain? Grow? Shrink? I think they've had a very good run and they seem to gain more customers every year. Their pitch has resonated with younger people.
Will there be another brutal selloff at some point? Will all these young people who discovered or rediscovered an interest in the market and investing disappear, as it did in 2008 or 1973? Sure, that's a possibility, and it will be a big test for Fidelity, as it will be for everyone else. How do they maneuver that period whenever it comes and however long it happens?
They're a really big company. The notion that any of their peers could just call up Abby Johnson and say, "Hey, I'd like to buy Fidelity," the math just becomes increasingly difficult to imagine any way that that can happen. But they are a family business, and at some point, there will or won't be a transition to the fourth generation.
Do you have a guess for who will eventually replace Abby Johnson? Abby is 64. By her actions in recent years, I think she still has a long way to go in running the place. And it's notable that her father was running the show well into his late 70s.
There are a number of grandchildren, many of whom are still in their 20s. It just seems too early to determine if they want to do it.
Ned Johnson had all these ideas and scenarios in mind if either of his kids, or none of them, wanted to take over. In the end scenario where no one in the family is able or available to take it over, what would happen? These are all scenarios that, in some way, still exist today.
This interview was edited and condensed.
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I'll be in...
- Manhattan this week, meeting sources, and a couple of friends.
- Boston later this month, finally! Let me know if you want to meet up.
