Fidelity: hedges have hurt their biz bad

Our hearts weep for these good folks. Fidelity, one of the world's biggest and best known money managers, has seen its fund business shrink to generate less than half its revenue, and it expects this to continue.

Bob Reynolds, Fidelity's chief operating officer, told the Financial Times that Fidelity generated more than half its revenue from the processing and administration of payroll, health and retirement plans. This low-margin business will provide greater growth than the money management business, he said.

Fidelity, which manages $1,500bn globally, had been diversifying its business, he said, as well as shoring up its money management unit following a slide in performance.

It has hired 90 analysts in the past year, doubling its research staff, restructuring the unit and setting up a new arm to manage institutional money, in a series of moves that represent probably its biggest change in the past 20 years.

Mr Reynolds said regulatory changes such as the rule on fair disclosure – Reg FD – and the rise of hedge funds meant it was no longer as easy to maintain a competitive edge in research. Fidelity has broken with its tradition by going outside the company to recruit analysts and fund managers.

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