The pension fund, which invests money for the state’s 250,000 public sector workers, put Fidelity on a “watch list” last year as performance sagged, according to a Reuters news report.
“Fidelity is in critical condition right now,” Stanley Mavromates, deputy chief investment officer at the $32-billion pension fund, told the fund’s board at a meeting. He will meet with Fidelity in the next weeks to discuss the matter and prepare a recommendation for the board to vote on in April, according to the report.
Fidelity invests $475 million in domestic equities for the fund while Steven Kaye, who also runs the $31 billion Growth & Income mutual fund, manages the money. Last year Kaye underperformed his benchmark by 10 percentage points, Mavromates said.
Kaye got slammed by his bets on technology, where he was underweight even as the sector roared back, and telecommunications, where he was overweight. “He was in the perfect storm, but he was on the wrong side,” Mavromates asserted. Pension fund officials said they liked Kaye’s approach but were torn over what to do because other managers who follow a similar style beat Kaye last year.
Fidelity spokesman Vin Loporchio on Tuesday said “We continue to value the long-term relationship we have with the Commonwealth and as always look forward to proving the fund with the information they need to fulfill their fiduciary responsibility.”
In spite of Kaye’s poor performance, Mavromates noted that Fidelity’s high-yield portfolio fared very well and helped propel the fund to its best calendar year performance. In the year that ended on December 31, the pension fund returned 26.42%. In the last 10 years the Massachusetts pension fund ranks in the first percentile among all public funds.
Last year, the fund was the first to fire Putnam Investments, after the sixth-largest mutual fund manager was charged with securities fraud for letting its managers and clients break internal rules that forbid market timing. Later this year, the pension fund plans to pick a manager to invest roughly $1.1 billion in international equities it had pulled away from Putnam and transferred to Boston-based State Street to be invested in a passive index.
The pension fund does not often fire managers but will move if performance suffers or there is turnover among the managers charged with investing the money.