Edward C. "Ned" Johnson III
Edward C. "Ned" Johnson III
Chairman emeritus, Fidelity Investments
Given his self-effacing demeanor, it may be a bit of a stretch to think of Ned Johnson as a trailblazer in the world of investments.
The scion of a wealthy Boston family, Mr. Johnson, 87, would be easy to picture as the anonymous philanthropist, arts patron and behind-the-scenes civic booster that he is. It's more difficult to imagine him as a knowledgeable, passionate advocate for technology; an entrepreneur willing to take risks unacceptable to public companies; or a champion of middle-class investors.
But in the nearly 40 years Mr. Johnson led the company, Fidelity grew to manage $6.5 trillion in assets for more than 26 million individual customers. It is a leader not only in mutual funds but in institutional retirement plans, brokerage and securities servicing.
"Before John Bogle at Vanguard, the Johnson family, and Ned in particular, made investing easier for millions of people," said John Bonnanzio, editor of Fidelity Monitor & Insight, an independent newsletter for investors in Fidelity mutual funds.
Built around an early mutual fund, Fidelity Management & Research Co. was created in 1946 by Edward C. Johnson II. His son Ned joined the firm as a research analyst in 1957 and managed several of its funds, becoming president in 1972 and chairman and chief executive in 1977 after the senior Mr. Johnson’s retirement. Ned Johnson stepped down in December 2016, becoming chairman emeritus, but he still comes to the office regularly and consults with his daughter Abigail P. Johnson, now Fidelity's CEO.
One of Fidelity’s drivers of growth, said Ms. Johnson, has been her father's passion for investing — a passion he shared with his father.
"He also had a passion for building a business, which I think was something my grandfather probably didn't have because he was completely focused on being a great investor. My father had a vision to do more than just have a great investment capability. He wanted to create a business that would extend and expand and be sustainable beyond any market cycle," she said.
Perhaps core to building a business that went beyond investing was Mr. Johnson's decision to invest heavily in technology.
"Ned was one of the most creative thinkers and forward-looking leaders in the industry," said Robert C. Pozen, author and former chairman of MFS Investment Management, who served as vice chairman of Fidelity Investments and president of Fidelity Management & Research Company under Mr. Johnson. "He was always fascinated by technology, and I remember when IBM came to sell us on new computers, Ned knew almost as much about it as they did. He invested heavily in technology way before others."
When Boston's massive "Big Dig" tunneling project required ripping up downtown streets near Fidelity offices, Mr. Bonnanzio remembers Mr. Johnson knowing precisely how the company's vital communication lines would be affected and what steps had to be taken to insure continuous operations.
The emphasis on technology and investments in the non-glamorous operational "plumbing" that is the heart of securities firms' back offices enabled Fidelity to expand in areas including correspondent clearing for other brokerage firms and custodial services for the growing registered investment advisory market.
It also permitted Fidelity to become a leader in what originally was called "discount" brokerage, or the business of offering low-commission, over-the-phone and now online trade executions directly to investors. Perhaps the biggest tech-powered innovation was introducing check-writing to money market funds, which changed cash management for millions of Americans.
"The invention of the money market fund with a check was staggering," recalls Peter Lynch, manager of the Fidelity Magellan Fund during the period of its explosive growth in the 1980s and 1990s. "I remember people saying, ‘You're going to lose $10 million, $30 million, $50 million doing this' and Ned would say, ‘Tell them it's a bigger number, because it will keep people out. They're right, we might lose money, but we think it's amazing for our customers and if we have it, no one else will own it.'"
Mr. Johnson's vision — and patience to wait for an eventual payoff — also led the firm to be a leader in administering and managing defined contribution retirement plans.
"He was in the forefront of the 401(k) business and invested in it when people didn't know what those obscure numbers were, and fewer thought it would grow into what it has become," Mr. Pozen said.
As an investor and manager of professional investors, Mr. Johnson also shone. In addition to successfully managing several Fidelity funds early in his career, Mr. Johnson attracted and developed talent who became legendary fund managers.
"Ned had run Magellan Fund, so he knew about it," Mr. Lynch said. "He'd come down maybe once a week or once every 10 days and we'd talk about what was in the fund. He was very flexible and wanted to hear my ideas and ask the reason I liked this stock or that stock, and the story behind it."
The explosive growth of Vanguard, of course, has raised questions about whether Mr. Johnson minimized the competitive threat of passive investing.
"The obvious reason Fidelity didn't go into passive in a big way is that passive wasn't a great fit with Fidelity's culture," Mr. Bonnanzio said.
Mr. Lynch's response underscores that point.
"If you want to get average results, which some people want, that's fine; we've had index funds for a long time. But we believe you can beat the market, and we've proven it," he said.
As an investor, Mr. Johnson is probably most proud of having created the Fidelity Charitable Gift Fund, now known as Fidelity Charitable. Started in 1991, it was the first national donor-advised fund program and fulfilled Mr. Johnson's wish to create for the middle class an investment vehicle — the charitable foundation — that previously had been available only to the wealthy.
The fund has inspired numerous other national donor-advised funds, but it remains the largest such program in the U.S., and it's one of the nation's largest public charities.
- Evan Cooper