How FIDELITY made a 6,101% gain for itself while it’s clients ma …

Everyone knows about the mutual fund giant Fidelity Investments run by the Johnson family. It has won the trust of tens of millions of investors and been around for decades.

Fidelity’s tradition of putting clients’ interests “before our own is a big part of what makes Fidelity special,” the fund firm proudly boasts in its mission statement.

However, according to a revealing new investigation by REUTERS news, the Johnson family saves the most lucrative investments for itself using a personal vehicle called

“F-Prime Capital Partners.”

F-Prime is a private venture capital arm run by the Johnson’s which competes directly with Fidelity mutual funds where the public invests.

This unusual arrangement presents a massive conflict of interest according to experts familiar with the matter.

Case in point, the average 1yr return for a fidelity 500 index mutual fund was a mere 4.48% (before fees?)

Reuters analyzed 10 pre-IPO investments since the beginning of 2013 by the Johnson-led venture capital arm.

The analysis found,

“in six of those cases, Fidelity’s mass-market mutual funds made major investments later and at much higher prices than the insiders’ fund, resulting in lower returns for Fidelity fund shareholders. In the other four cases, Fidelity funds did not invest at all in companies in which the Johnson-led venture arm already had a sizable stake. ”

— Reuters

To be specific, U.S. regulatory filings show the Fidelity owners made a 6,101% gain on pre-IPO Alibaba not it’s clients. 

Fidelity Investments is owned by privately held FMR LLC, which is controlled by the Johnson family. In light of these revelations, is it any wonder that the CEO of FIDELITY is listed on Forbes as being worth $12.4 Billion while we can’t seem to find any fidelity mutual fund investors reaching similar stature? Indeed, Over the years, F-Prime and other venture investing entities have generated billions of dollars in gains for the family.

James Post, a professor emeritus  at Boston University said.“It does raise a potentially serious question…”

Alternative potential conflict can be seen in the case of Ultragenyx Pharmaceutical Inc. In 2011 and 2012, the Johnsons’ F-Prime Capital invested $11 million on Ultragenyx before the start-up made an initial public offering of its stock. Apparently, managers of Fidelity’s public funds eventually purchased Ultragenyx, but not until after the stock price skyrocketed in the initial public offering.

Fidelity is not alone, the 86 year-old firm Wellington Management that has more than $900 billion in assets is participating in pre IPO. To date, Wellington has participated in big funding rounds for private companies like Adaptimmune, Docusign, Honest Co., Lookout, Nutanix, Veracode and Uber. Wellington declined to comment, confirm or deny.

 

SOURCE:

“How the owners of Fidelity get richer at everyday investors’ expense”

Abstract published by opinion for educational purposes only.