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Fidelity Ups Ante on Institutional Push: Plans to Double Assets to $2 Trillion by 2010


Fidelity Investments has grown quite comfortable at the top of the mutual fund industry, but the Boston firm always sees room for improvement and most recently set its sights on growing its institutional business.

Fidelity Management Trust Co. (FMTC) recently announced its assets have topped $100 billion, a 12% increase in just the first half of the year and largely the result of a record increase in assets from international equity mandates for corporate tax-exempt pension plans. But ambitions for FMTC go far beyond that, as the company recently announced it hopes to double its current $1 trillion in assets by 2010, primarily through institutional sales.

Drew Lawton, president and CEO of FMTC, attributes this year's surge in assets primarily to excellent product performance in both international equity and fixed income. Lawton added, in a recent interview with MME, that the growth was spread between corporate and public pension plans.

"We hope to see continued growth in international equities. They really have no impact on domestic equity products," Lawton said.

47 New Wins

FMTC also won 47 new portfolios in a matter of six months. Among those new corporate and tax-exempt clients, 13 of them had $2.1 billion in assets earmarked for Fidelity's International Growth product during the first half of 2005, increasing assets in that portfolio to more than $17.1 billion, a remarkable 37.3% annual increase.

Fidelity has also reported that, due to increasing interest in its Select International fund, it now has seven client mandates totaling $620 million, signaling that investors may continue to expand their international holdings during the second half of 2005.

Lawton added that seven new corporate clients selected Fidelity to be their full-service benefits administration provider, and this increased the firm's defined benefit outsourcing business assets to the highest they have ever been: $4.6 billion, a 33.1% increase over a period of just one year.

Lawton also reported that returns in its fixed income investment, Core Plus, which seeks to achieve complete risk-adjusted returns in surplus of the Lehman Brothers Aggregate Bond Index by investing in both investment grade and non-investment grade sectors, has increased on the strength of rising interest rates.

Recalling the Greeks

Meanwhile, Fidelity has set up a new institutional equity asset management company called Pyramis. Peter J. Smail, who has been at Fidelity for 18 years, has been chosen to run the unit, which will be based in Boston and then relocate to Rhode Island once it's up and running smoothly. Prior to his appointment, Smail oversaw Fidelity's 401(k) division.

Fidelity's Mutual Fund Group is handling hiring for Pyramis, which got under way with appointing Robert J. Haber, manager of Fidelity's best-performing large-cap mutual fund, the $80 million Fidelity Focused Stock Fund, as chief investment officer.

Fidelity's goal is to double its assets under management to more than $2 trillion within 10 years.

Fidelity expects the Pyramis team, which currently numbers about 50 portfolio managers, analysts and support personnel, to swell to just under 200 employees by the time the Rhode Island move is executed.

At present, Pyramis' institutional fixed income and high yield are managed by an investment group in Merrimack, N.H., while the emerging markets team is based in Boston. In addition, Pyramis is planning to create hedge-fund-like new products that will be riskier than its mutual fund business.

Skepticism Exists

Some critics, however, contend that managers who oversee both institutional and retail assets may not only be managing too much, but there also exists potential for conflicts of interest.

Donald Pierce, an investment officer at the $5 billion San Bernardino County Employees Retirement Association in California believes that "having one team oversee both [pension and mutual funds] can cause a lot of friction within firms."

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