Fidelity Investments: Where Are Shareholder Funds Held?

Fidelity Investments, formerly known as Fidelity Management & Research (FMR), is an American multinational financial services corporation based in Boston, Massachusetts. It is one of the largest asset managers in the world, with trillions of dollars in assets under management and administration. The company operates a brokerage firm, manages mutual funds, and provides a range of financial services to its clients. With such a large presence in the financial industry, it is important to understand where the company's funds are held and who has access to them.

Conflict of interest between Fidelity and shareholders

Fidelity Investments, a private company, has a conflict of interest with its shareholders due to its structure and practices. The company is owned by the Johnson family, who also run a private venture capital arm, F-Prime Capital Partners, which competes directly with Fidelity's mutual funds for lucrative deals. This arrangement is a legal grey area and poses ethical concerns, as it prioritises the family's interests over those of the fund's investors.

F-Prime has made pre-IPO investments in promising startups, such as Ultragenyx Pharmaceutical Inc., at a fraction of the price, effectively preventing Fidelity's mutual funds from making the same investments due to securities laws. This results in lower returns for Fidelity fund shareholders, as the funds can only invest after the IPO when the stock price has skyrocketed.

Fidelity's internal guidelines aim to manage this conflict by prioritising the funds' interests and preventing investments in companies where F-Prime has a "substantial" stake. However, the lack of clarity around what constitutes a "substantial" stake and the presence of key personnel in dual oversight roles for both Fidelity and F-Prime raises concerns about the effectiveness of these measures.

Additionally, the distribution of lucrative partnership interests in F-Prime to star portfolio managers of Fidelity's mass-market funds further complicates the conflict of interest. This arrangement may influence the managers' investment decisions and has resulted in significant financial gains for individuals, such as Will Danoff, who received Alibaba shares worth $4 million through F-Prime.

Fidelity asserts that it adheres to legal and regulatory requirements regarding potential conflicts of interest and that its guidelines ensure fair treatment for investors in its mutual funds. However, the complex interplay between Fidelity's mutual funds and the Johnson family's private investments underscores the need for rigorous oversight and transparency to protect the interests of all stakeholders.

In conclusion, the conflict of interest between Fidelity and its shareholders stems from the competing interests of the Johnson family, who control the company, and the investors in Fidelity's mutual funds. While Fidelity has implemented guidelines to manage this conflict, the situation highlights the inherent complexities and risks associated with such structures. Rigorous compliance, oversight, and transparency are crucial to maintaining trust and ensuring fair treatment for all involved parties.

The Johnson family's private investments

The Johnson family, founders of Fidelity Investments, have a private venture capital arm, F-Prime Capital Partners, that competes directly with the stable of Fidelity mutual funds. This arrangement poses a conflict of interest, as the Johnson family's interests are placed before those of the public investors in the Fidelity mutual funds.

In the case of Ultragenyx Pharmaceutical Inc, a biotech start-up, the Johnsons' F-Prime Capital invested a total of $11 million before the company's initial public offering of its stock. This pre-IPO investment prevented Fidelity mutual funds from making the same play due to US securities laws that prohibit affiliated entities from buying substantial stakes in the same companies at the same time. As a result, the Fidelity funds bought Ultragenyx shares after the stock price had skyrocketed, leading to lower returns for Fidelity fund shareholders.

Similar instances have occurred with other companies, including Aclaris Therapeutics Inc and Adaptimmune Therapeutics plc, where the Johnson-led venture arm has made significant pre-IPO investments, effectively blocking Fidelity mutual funds from investing at the same time and resulting in missed opportunities for Fidelity fund shareholders.

The Johnsons' private investments have generated billions of dollars in gains for the family and have contributed to their estimated net worth of $26 billion, making them the 9th-richest family in the United States.

Fidelity's asset management

Fidelity Investments, formerly known as Fidelity Management & Research (FMR), is an American multinational financial services corporation based in Boston, Massachusetts. It is one of the largest asset managers in the world, with trillions of dollars in assets under management and administration. The company operates a brokerage firm, manages mutual funds, provides investment advice, and offers a range of financial products and services to its clients.

Fidelity's mutual funds cover all asset classes, from domestic equity to specialized sectors, providing investors with a diverse range of investment choices to achieve their strategic goals. The company has over 70 years of experience in the business and offers cost-efficient ways to build a diversified portfolio. With its rich history, global research capabilities, and dedication to innovation, Fidelity has established itself as a world leader in mutual funds.

In addition to its traditional asset management services, Fidelity has expanded its offerings to include sustainable and thematic investing options. Sustainable investing allows individuals to align their investments with environmental, social, or governance (ESG) factors, while thematic investing enables them to focus on long-term trends and economic, technological, and social developments.

Fidelity also provides sector funds that offer tactical investment approaches, such as sector rotation strategies, and enhanced diversification for investors' portfolios. The company has over 35 actively managed sector and industry funds, backed by a dedicated team of over 200 equity research professionals.

Fidelity's fixed income funds are managed by one of the country's largest and most experienced investment organizations, with over 750 investment professionals worldwide and over $460 billion in bond assets. The fixed income funds include short-duration, corporate, mortgage, government, diversified/opportunistic, international, high yield, and municipal bond funds.

While Fidelity's asset management division primarily serves individual investors, the company also has a significant presence in the workplace investing and institutional sectors. Fidelity works closely with employers to create dynamic and integrated benefit programs for their employees, including retirement savings plans, health and welfare programs, and stock plan services. The company also provides investment and technology solutions to wealth management firms and institutions, helping them navigate the changing industry landscape and meet their clients' evolving financial needs.

Fidelity's international equity funds

Fidelity Investments, formerly known as Fidelity Management & Research (FMR), is an American multinational financial services corporation based in Boston, Massachusetts. It is one of the largest asset managers in the world, with trillions of dollars in assets under management and administration. The company operates a brokerage firm, manages mutual funds, and provides a range of financial services, including investment advice, retirement services, and wealth management.

One example is the Fidelity Total International Equity Fund (FTIEX), which has a large blend of foreign stocks with a focus on large-cap growth. As of July 31, 2024, this fund had a Morningstar Medalist Rating of Silver, indicating strong performance and a well-managed investment strategy. The fund's top holdings include well-known international companies such as Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, and Samsung Electronics Co Ltd.

Another option is the Fidelity Sustainable International Equity Fund (FSYRX), which focuses on investing in companies that meet certain environmental, social, and governance (ESG) criteria. This fund is designed for investors who want to align their investments with their values while also seeking international diversification.

In terms of where the funds are held, shareholders of Fidelity's international equity funds would typically hold their investments through a brokerage account or a retirement account, such as a 401(k) or an IRA. These accounts can be held directly with Fidelity or through other financial institutions that offer Fidelity funds. The specific details may vary depending on the investor's country of residence and the type of account they have chosen.

Fidelity's fixed income funds

Fidelity Investments, formerly known as Fidelity Management & Research (FMR), is an American multinational financial services corporation based in Boston, Massachusetts. It is one of the largest asset managers in the world, with trillions of dollars in assets under management and administration.

Fidelity offers a wide range of investment options, including fixed-income funds, which are designed to provide investors with a stable source of income and capital preservation. Fixed-income funds typically invest in bonds, CDs, annuities, and other debt securities that pay a regular return.

• Experience and Stability: Fidelity is one of the most experienced fixed-income managers in the industry, with over 190 professionals managing more than $1 trillion in assets.
• Strong Track Record: 24 Fidelity fixed-income funds have been awarded 4 or 5 stars by Morningstar, and 8 funds have earned a GOLD Morningstar Analyst rating.
• Diverse Product Offering: Fidelity offers various fixed-income investment options, including bond funds, exchange-traded funds (ETFs), individual bonds, certificates of deposit (CDs), and annuities.
• Award-Winning Fund Managers: The portfolio managers of the Fidelity Total Bond Fund won the Morningstar 2016 U.S. Fixed-Income Fund Manager of the Year award.
• Competitive Performance: Fidelity has a proven ability to deliver competitive returns over varied market environments, and its fixed-income funds have outperformed their competitors.
• Risk Management: Fidelity's fixed-income funds aim to manage risk by diversifying their portfolios and employing fundamental and quantitative analysis.
• Low Fees: Fidelity offers low, transparent fees for fixed-income investments, such as a $1 per bond fee and free online trading for US treasuries and CDs.
• Specialist Support: Investors have access to Fidelity's specialists in fixed income and, for eligible clients, the high net worth desk for integrating bonds and CDs into their portfolios.
• Wealth Management Services: Fidelity provides comprehensive wealth management services, including dedicated advisors and professional investment management, to help clients grow and protect their wealth.

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