Business

A family business adapting fast to the digital world with the help of crypto assets

The cryptocurrency market has been given a big boost by Fidelity Investments’ decision to launch a bitcoin fund for family offices and other wealthy investors. But this is only the latest in a series of tech-driven innovations backed by its US multi-billionaire founders, the Johnson family.  

Chief executive Abigail Johnson, known as Abby, owns a quarter of Fidelity with members of her family and employees, owning the rest. She alone is reported to be worth $15 billion. Her father, Edward Johnson III, called Ned, is Fidelity’s chairman-emeritus. Fidelity Investments is the 91st biggest family business in the world, according to Family Capital.   

The business manages $3.3 trillion on a discretionary basis. Its US customer accounts total $8.3 trillion drawing on 31.3 million brokerage accounts, generating 2.3 million trades a day. 

Last week, a Johnson family-owned group, Avon Ventures, invested in BlockFi, a New Jersey-based digital asset investment/lending group…

Technology, and the scale it creates, makes all this possible, enabling Fidelity to ride a recession which is devastating other asset management houses. Flows into money market funds, index products and client accounts exceeded active management outflows in 2019 pushing Fidelity’s operating income up 10% to a record $6.9 billion. 

A private equity adviser said: “Technology and asset management have become opposite sides of the same coin. The Johnson family saw the trend early.” 

Innovation is crucial to Fidelity’s momentum, hence the bitcoin deal. Its decision to file its Wise Origin Bitcoin Index fund for registration with the Securities & Exchange Commission comes two years after its decision to manage digital assets for family offices, hedge funds and trading firms. It has been researching digital ledgers, known as blockchain, since 2014.  If the SEC gives the nod, the minimum size of each subscription will be $100,000, although Fidelity declined to comment further.

A separate innovation could involve Fidelity delivering active funds through a listed ETF wrapper, which has the potential to open up new distribution channels. 

Fidelity was founded by Abby Johnson’s grandfather, Edward Johnson II, in 1946, who once said it was better to “take intelligent risks than follow the crowd.”

It went on to earn a reputation for retaining champion stock pickers, led by Peter Lynch.  Between 1977 and 1990 Lynch generated an annualised return of 29.2% at the Magellan Fund, more than double the S&P 500 index. He was famous for his catchphrase “invest in what you know” when research-driven managers were relatively thin on the ground.

The Johnson family went on to offer its research-driven funds across the world through a separate company, Fidelity International. Of late, stock picking has gone out of fashion, as large swathes of money managed by passive and rules-based funds have pushed markets up and down, with little respect for the corporate fundamentals which mattered so much to Lynch.

Fidelity stayed on the front foot by pioneering the sale of mutual funds and brokerage services to online investors. It populated its new platform with financial advice and, more uniquely, mutual funds run by rival managers.

In his book Shift, about the digital economy, Haydn Shaughnessy praises Fidelity for putting together online platforms accessed by individuals wanting to buy, trade and manage products with ease. This paved the way for other fund supermarkets as well as platforms in other sectors like those managed by Amazon and Alibaba. 

Fidelity went on to develop zero-fee indexed funds which are popular with investors and generate a return for Fidelity via stock lending. Price comparison service Nerdwallet rates Fidelity as a five-star provider, taking account of its zero charge for indexed funds and brokerage, plus the way spare customer cash is swept into interest-bearing money market funds. 

Fidelity has become the top record keeper for pension plans in the US, happy to bundle funds and brokerage into a single client statement at an early stage. 

It has used its technological expertise to sell applications to other providers. One relatively new service, Integration Xchange, is an open architecture digital store, which provides third-party firms with access to 175 investment tools, such as data feeds and real-time alerts.

Shaughnessy pays tribute to the Johnson family’s long-term view and commitment, innovation and “extraordinary openness to third parties.” 

The Johnson family are also leaders in the tech-driven venture capital sector. They have developed an independent US-based venture capital business called F-Prime Capital which has invested $2 billion in portfolio companies, comprising healthcare, technology opportunities and fintech. Its sister VC business is Eight Roads, an extensive investor in Asia. The Eight Roads team, which has invested $6 billion, were early backers to Alibaba of China. 

Last week, a Johnson family-owned group, Avon Ventures, invested in BlockFi, a New Jersey-based digital asset investment/lending group, underlining the family’s and Fidelity’s growing commitment to the crypto asset world.  

The family is also a long-term investor in 8.4 million square feet of prime property through Pembroke Real Estate, led by Abby’s brother, Edward Johnson IV, which invests in seven of the world’s largest cities. Younger sister Beth runs Louisburg Farm, a training facility for show-jumping horses in Florida. 

But no matter what happens in the world of real estate, showjumping and stock picking, it is expertise in technology which has been key to Fidelity’s resilience.

 

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