Moody's on Fidelity: A mixed bag

Fund giant's Aa3 rating makes it a low credit risk, but Moody's still worries about transparency.
NOV 08, 2007
By  Bloomberg
Moody’s Investors Service has maintained its Aa3 rating of Fidelity Investments of Boston, and also maintained a negative outlook assigned in February. The high rating is a measure of the creditworthiness of the company, which earns revenue from mutual fund management, retail brokerage services and workplace services administration. But Fidelity’s private status reduces its financial flexibility and could impair the firm’s growth, Moody’s, a New York-based ratings company, said in Wednesday’s credit opinion. Fidelity says that its private status affords it greater ability to focus on long-term objectives and its investors without distractions of earnings expectations, Moody’s said. The Johnson family owns 49% of the voting stock and a few executive level managers own the other 51%. However, Moody’s said that threats from Fidelity’s mutual fund competitors and modest profit margins, among other factors, led to the firm’s rating outlook change earlier this year, and poor performance in some of its flagship equity funds has upheld that negative outlook. While Fidelity has a dominant position in the retirement plan market and extensive assets to generate cash flows, several factors continue to impact the company’s profit margin, which eventually could change the firm’s ratings down, Moody’s said. Fidelity’s assets under management were $1.5 trillion as of Aug. 31, according to the ratings company.

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