Bloomberg News

Hidden Johnson Billionaires Found in Fidelity Fund Empire

September 20, 2012

Fidelity's Mutual Fund Investments Returns Two Billionaires

Edward C. "Ned" Johnson III, chairman of Fidelity Investments, poses in this undated handout photograph provided to the media on Thursday, Jan. 21, 2010. Source: Fidelity Investments via Bloomberg

The intersection of Devonshire and Water streets in Boston’s financial district is the hub of one of the biggest fortunes in the U.S.

Each weekday morning, buses from BostonCoach Corp., a transportation company operating in 40 countries, shuttle commuters around the city, a trip that includes a stop at the Boston Seaport, a 180,000 square-foot waterfront hotel and exhibition complex. Once off the bus, many of the passengers hustle toward 82 Devonshire, the headquarters of Fidelity Investments, the second-largest U.S. mutual fund company.

All of those businesses -- Fidelity, the bus line and the hotel -- are controlled by the Johnson family, led by patriarch Edward C. “Ned” Johnson III. Combined with the family’s collection of other assets, including a lumberyard chain, a farm and interests in oil and gas, the Johnson clan is worth $22 billion, according to the Bloomberg Billionaires Index.

“The success of the company speaks to their effectiveness as managers,” said Robert M. Gervis, owner of consulting firm Epilogue LLC, in a phone call from his Boston office. Gervis spent 15 years managing various Johnson family investment companies and Fidelity divisions.

Ned Johnson, 82, is worth $6.9 billion, according to the index. His daughter, Fidelity president Abigail P. Johnson, 50, has a net worth of $10.1 billion, making her the sixth-richest woman in America. Her two siblings, Fidelity heirs Edward C. Johnson IV, 47, and Elizabeth L. Johnson, 49, each have $2.5 billion fortunes. The latter two Johnsons have never appeared on an international wealth ranking.

Fidelity Valuation

Vincent Loporchio, a spokesman for FMR LLC, Fidelity’s parent company, said the Johnsons declined to comment on their net worth or the company’s ownership structure. The Johnsons’ family office, Crosby Advisors LLC, relocated from Boston to Salem, New Hampshire, in 2010, according to Financial Advisor Magazine. The move may have been prompted by the state’s favorable trust taxes, the magazine said.

The Johnson family’s most valuable asset is Fidelity Investments. The closely held mutual fund operator reported revenue of $12.8 billion and operating income of $3.3 billion in 2011. According to a 2010 FMR bond offering statement, the company had $9.2 billion in debt at the end of 2009.

Based on the average enterprise value-to-earnings before interest and taxes and enterprise value-to-sales multiples of five publicly traded peers -- BlackRock Inc. (BLK:US), Franklin Resources Inc. (BEN:US), Invesco Ltd. (IVZ:US), Legg Mason Inc. (LM:US) and T. Rowe Price Group -- Fidelity is valued at about $37 billion, more than any other fund management company in the U.S.

Family Ownership

The Johnsons own 49 percent of the company, according to U.S. Securities and Exchange Commission filings. The remaining 51 percent stake is split among 108 Fidelity executives, according to a March 2010 bond prospectus.

The exact ownership by the four Johnson family members is less transparent. According to a document filed with the SEC in August 2005, Abigail Johnson owns 24.5 percent of the company and her father owns 12 percent. Since that filing, Fidelity has elected to disclose only the total family ownership. According to an SEC official who asked not to be identified because the agency isn’t authorized to discuss specific companies, if any person had 25 percent or more ownership of FMR, it would have to be specifically disclosed.

The remaining 12.5 percent of FMR is split between Elizabeth Johnson and the younger Ned Johnson, according to the index. A Dec. 31, 2000, report to Utah’s Department of Insurance listed the pair as each owning 5.6 percent, according to a 2004 Bloomberg Markets magazine article. A 2012 SEC filing states they own from 5 percent to 9.9 percent.

Corporate Reorganizations

In 2006 and 2007, FMR reorganized its shares down to a single class in order to meet a U.S. Internal Revenue Service requirement for receiving tax treatment as an S-corporation. As part of the restructuring, shareholders -- including the four Johnsons -- received $2.9 billion in subordinated debentures as payment for the terminated shares.

Adding to the family fortune is FIL Ltd., a separate fund company for investors outside North America. FIL, known as Fidelity Worldwide, was spun off as a Bermuda-based company in 1982. Its results aren’t reported as part of FMR. As of June 30, the company managed $217 billion, according to its website.

Regulatory filings indicate that the Johnsons own 39.89 percent of FIL. Based on the average assets under management-to- market capitalization multiples of four comparable fund managers -- Aberdeen Asset Management Plc (ADN), Henderson Group Plc, Man Group Plc (EMG) and Schroders Plc -- FIL is worth $2.7 billion.

FIL London-based spokesman Peter Yandle said the Johnsons own “a substantial minority holding and fund managers and senior employees own the rest.”

Fund Growth

Fidelity’s assets under management grew from $39.5 billion in 1985 to $409.5 billion a decade later. Today, it manages $1.4 trillion in mutual fund assets, about 12 percent of the U.S. market, according to data compiled by Investment Company Institute, a Washington, D.C.-based industry association. American households now hold 23 percent of their assets at investment companies.

The rise of Fidelity mirrors the surge in American do-it- yourself investing. In 1977, when Ned Johnson III became CEO of FMR, Americans had less than 3 percent of their financial assets in mutual funds, according to ICI data. That percentage began to rise with the introduction of new investment vehicles, such as 401(k) plans, individual retirement accounts and simplified employee pensions. During this time, he began marketing Fidelity funds directly to the public, cutting out brokers with sales commissions of as much as 8 percent.

Boston Seaport

The growth attributed to the elder Johnson’s reign has slowed in recent years. Annual sales remain below 2007’s peak of $14.6 billion. Last month, Abigail Johnson was appointed president of Fidelity Investments, and was given responsibility over asset management, brokerage, retirement and benefits services. She began her career with the company in 1988.

Ned Johnson IV, who lives on Boston’s Union Wharf, is president of family-owned Pembroke Real Estate, a company he helped create in 1997. Pembroke manages 6.5 million square feet of office and residential real estate, including the Boston Seaport. Pembroke’s primary clients are Fidelity investors and family investment vehicles, according to the 2010 FMR prospectus.

Elizabeth Johnson listed her employer as Louisburg Farm Inc. on political donations to Massachusetts Republican Senator Scott Brown’s 2010 campaign, according to the Washington, D.C.- based Center for Responsive Politics. Louisburg Farm is a horse show barn near the Winter Equestrian Festival grounds in Wellington, Florida. She has been president of the company since it registered with the Florida Secretary of State in 2004.

Lumber, Oil

The Johnsons hold some personal investments through Boston- based Northern Neck Investors LLC, an investment adviser that has $2.2 billion in assets. According to a March 2012 SEC filing, Northern Neck is principally owned by the Johnsons, and includes investments benefiting other FMR executives.

Based on an analysis of the filings, it is estimated the Johnsons own about 80 percent of Northern Neck’s assets. Details about Northern Neck’s holdings were disclosed in the 2010 FMR prospectus due to accounting principles that required disclosure because of the Johnson family’s control of FMR.

Among Northern Neck’s major holdings is ProBuild Holdings Inc., the largest lumberyard chain in the U.S. The company has 435 locations in the U.S. and had sales of $3.2 billion in 2009.

Northern Neck also held $403 million in oil and gas reserves in the Rocky Mountain region and the mid-continent through FIML Natural resources, according to the March 2010 bond prospectus. The family also owns Nashua, New Hampshire-based human resources services company HR Access North America; Madison, Maine-based hydroponic tomato grower Backyard Farms LLC; and Boston-based temporary staffing firm Veritude LLC.

Charity

The Edward C. Johnson Fund, the family’s charitable foundation, has disbursed more than $225 million to charities since 2000, according to IRS filings. Among the major regular recipients of the gifts are the Peabody Essex Museum in Salem, Massachusetts; the Bermuda Underwater Exploration Institute, a Hamilton, Bermuda-based museum; and the Brookfield Arts Foundation, a non-profit founded by Ned Johnson III to purchase art and lend it to museums. The family has also given more than $200 million to charities in the U.S. and Canada through the Salem, New Hampshire-based Fidelity Foundation.

“The Johnsons are extremely important both as a major employer and as part of the Boston and Massachusetts brand and they are very philanthropic in what they have done,” said Paul Guzzi, president of the Greater Boston Chamber of Commerce, in a phone call from his Boston office.

Christmas Cab

As of the end of 2010, the foundation had $401.6 million in assets held in Fidelity mutual funds and a portfolio of individual securities, the filings show.

Long shy of the media spotlight, personal insight into the family often falls to rumor and old stories. In 2004, Eric Kobren, a former Fidelity employee who ran an independent newsletter on the company’s funds, told Bloomberg Markets magazine that he once saw the elder Johnson standing outside at 2 a.m. after a Christmas party in the bitter Boston cold, looking for someone to share a cab to the airport.

To contact the reporter on this story: Brendan Coffey in Boston at bcoffey10@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net


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