Improving performance at its mutual funds and a reorganization of its leadership team helped push pretax income at Fidelity Investments, the world's largest fund company, up 22 percent last year to $2.2 billion from $1.8 billion in 2006, it said in its annual report issued yesterday.
In a report to shareholders of Fidelity's parent company, FMR LLC, Fidelity chairman and chief executive Edward C. "Ned" Johnson III said the company posted "strong operating results" for 2007, and his top executives outlined ambitious expansion plans, such as new partnerships with other financial firms.
But expenses also rose, Johnson wrote, citing costs for adding employees, advertising, and interest. Johnson acknowledged that while the performance of many of Fidelity's mutual funds has improved, so far that hasn't translated into a flow of new money into the funds.
The report covers the performance of Fidelity's closely held parent company, which includes business lines ranging from its well-known mutual funds to retirement-plan services. Though Fidelity is privately held and is not required to make the document public, the company distributes its shareholder report to the news media, allowing the public a rare glimpse into the company's inner workings.
Fidelity said revenue rose to $14.9 billion from $12.9 billion in 2006, and assets under management reached $1.6 trillion from $1.4 trillion in 2006. The company is among Massachusetts' largest employers, with 12,700 people here at the end of December, out of a worldwide workforce of 46,500.
The report is the first to be published since a reorganization last year in which FMR became a limited liability corporation, which usually do not pay corporate taxes or report profits. Instead, they distribute "pretax income" to shareholders, who are then responsible for their own taxes.
Fidelity also reorganized its executive suites last year, leaving some analysts concerned about succession plans for the day when Johnson, 77, eventually steps down. A year ago, Fidelity disclosed Johnson's daughter and presumed successor, Abigail Johnson, was elevated to vice chairwoman, but her father also tapped an outsider, former Fidelity executive Rodger A. Lawson, as president in July. Fidelity's lack of clarity about succession issues has drawn criticism from the rating firm Moody's Investors Service, as has its rising debt load.
Those issues aren't addressed in the report, and executives weren't conducting interviews yesterday, a spokeswoman said.
But in another portion of the report Lawson spelled out more of his thinking behind the reorganization. In Fidelity's bread-and-butter mutual-fund unit, assets under management ended the year at $1.4 trillion, up 17 percent from 2006. Funds like just-reopened Magellan outperformed 73 percent of their peers for the past year and three-year periods, Fidelity said.
Abigail Johnson, meanwhile, runs a division whose products include individual retirement accounts and defined-contribution plans for companies. It saw managed assets rise to more than $1 trillion from $947 billion in 2006.
Fidelity's Pyramis division, which manages money for institutional customers, reported assets under management of $164 billion at the end of 2007, up from $149 billion in 2006.
James Lowell, who edits the Fidelity Investor newsletter, said the results and declarations from the executives paint a more confident picture than in past reports. "You're seeing consistent, dramatic growth relative to their benchmarks," he said.
Johnson, he said, "has got some reasons to crow."
Ross Kerber can be reached at kerber@globe.com.
