(Bloomberg) -- Edward “Ned” Johnson III, who revolutionized the money-management industry by promoting mutual funds for retirement plans and money market checking accounts while head of Fidelity Investments, has died. He was 91.
He died on March 23 in Florida, according to Fidelity. No cause was given. He was a resident of Wellington, Florida, according to the firm.
“He loved his family, his coworkers, work, the stock market, art and antiquities, tennis, skiing, sailing, history and a good debate,” his daughter, Abigail Johnson, the firm’s chief executive officer since 2014, wrote in a LinkedIn post. “He could be counted on to have the contrarian view on just about anything.”
Ned Johnson was promoted in 1972 to president of the Boston-based firm his father had founded after World War II, and he served as chief executive officer until 2014. During his tenure at the top, assets jumped to more than $2.1 trillion from $3.9 billion, making Fidelity the second-biggest U.S. mutual fund company.
The firm now led by his daughter had $11.1 trillion in assets under administration, including $4.2 trillion in discretionary assets, as of Feb. 28.
With investing visionaries such as Charles Schwab and Vanguard Group Inc. founder John Bogle, Ned Johnson surfed the wave of financial market democratization and deregulation.
He pioneered the sale of mutual funds directly to individual investors rather than through brokers and abolished almost all of the firm’s 8% sales charges. He introduced 401(k) retirement plan management, in which Fidelity became the largest player. He was the first to offer money market funds that allowed customers to write checks, competing directly with bank accounts. He fostered celebrity portfolio managers and offered low-fee index funds.
“He created the financial supermarket,” Peter Lynch, Fidelity’s superstar stockpicker in the 1980s, said in a 2019 interview. “He was like a juggler with 20 balls in the air. I don’t know how he ever did it.”
Ned Johnson amassed a net worth of $13.6 billion, according to the Bloomberg Billionaires Index. The bulk of his fortune was derived from his 12% stake in the closely held company, according to a regulatory filing.
Vanguard Surpasses
Fidelity was the world’s biggest mutual-fund manager for more than two decades until 2010, when it was surpassed by Vanguard, which benefited from investor demand for low-fee passively managed index funds.
Edward Crosby Johnson III was born to Edward Johnson II and Elsie Livingston Johnson on June 29, 1930, in the well-to-do Boston suburb of Milton. His father was a corporate lawyer at Ropes, Gray, Boyden & Perkins, which became Ropes & Gray. He took over management of the $3 million Fidelity Fund in 1943 and three years later founded Fidelity Management & Research Co. to act as its investment adviser.
The younger Johnson, after graduating from Harvard University in 1954 and serving in the U.S. Army for two years, joined Fidelity in 1957 as an analyst.
“I was not sure if I would find the investment business interesting,” Johnson wrote in a 1996 magazine article, “Adventures of a Contrarian.” “My father had given me a healthy respect for the market -- a respect that came from his own experience watching a whole generation lose money in the late 1920s and 1930s. As a child, I knew you were not to play with the market, in the same way I knew not to play with matches, unless you knew what you were doing.”
Led Magellan
He became the first manager of Fidelity’s flagship fund, Magellan, in 1963, which he ran through 1971, beating the Standard & Poor’s 500 by an annual average of 22 percentage points. Magellan became one of the world’s largest and most successful mutual funds under Lynch, who ran it from 1977 to 1990.
Johnson pushed Fidelity to diversify from its mainstay mutual funds into employee-benefit services, a discount stock brokerage and institutional fund management. Johnson led Fidelity to invest in less liquid assets, including real estate and biotechnology startups. Fidelity served more than 35 million individual investors, 25,500 business retirement benefit plans and 13,500 financial advisory firms as of Dec. 31, 2020.
Johnson was a student of the Japanese concept of “Kaizen,” or attaining perfection through continuous improvement, which he restlessly pushed at his company.
“Fidelity’s biggest challenge these days is not fighting for survival; it is fighting against obesity,” he wrote in 1996.
Attention to Detail
He was known for his attention to detail and a self-critical approach. A collector of antique Japanese, Chinese and colonial American wooden furniture, he would pull out a pocket penlight during museum visits, Lynch said, and open the drawers of exhibits to examine the joinery and learn how things fit together.
“Here’s a guy who comes up with a new idea every three hours,” said Lynch, who served as a Fidelity vice chairman after retiring from Magellan. “He’s willing to try things out. Some work and some don’t. If they don’t work, we say bye-bye.”
Johnson had a “passion for privacy and a preference for behind-the scenes maneuvers and one-on-one meetings,” Diana B. Henriques wrote in her 1995 book, “Fidelity’s World,” a reticence to stand in the spotlight that his daughter inherited.
Abigail Johnson joined Fidelity in 1988 as a fund manager and moved quickly up the ranks, running investment management and retirement benefits.
Moody’s Criticism
Ned Johnson, who hadn’t publicly disclosed a clear succession plan, was criticized in 2007 by ratings company Moody’s Investors Service, which said it had “growing concerns about the level of control exercised by Mr. Johnson and the degree to which there are independent checks on his control.”
In 2010, Fidelity split the top management roles in the company between Abigail Johnson, who oversaw all customer and client-focused businesses as president of the personal, workplace and institutional unit, and Ronald O’Hanley, who led asset management. O’Hanley left to join rival State Street Corp. in 2014, before Abigail Johnson was promoted to CEO.
Abigail Johnson led Fidelity to introduce the first zero-fee exchange-traded fund in 2018. She also launched a cryptocurrency management unit for hedge funds, family offices and trading firms.
“He was famous for being a contrarian, and I think that probably rubbed off on me,” Abigail Johnson said of her father in a 2018 Bloomberg interview. “I’m not afraid to have a different point of view. He was incredibly inquisitive of everybody all the time. From what people tell me, I have a tendency to do the same thing. Whether that’s genetic or it comes out of the fact that we were both analysts and fund managers before we became managers, I don’t know.”
Her younger brother, Edward C. Johnson IV, worked in Fidelity’s real estate unit, Pembroke Real Estate, since its inception in 1997 and later was named president. Ned Johnson had another daughter, Elizabeth.
In addition to his three children, he is survived by his wife, Elizabeth, known as Lillie, and seven grandchildren.
--With assistance from Annie Massa.
