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By Tim McLaughlin
BOSTON Oct 5 One of the best kept secrets in
the mutual fund industry is the compensation of portfolio
managers who oversee trillions of dollars in retirement assets.
The SEC does not require any detailed disclosure.
But for those fund managers who make it to the top of
Fidelity Investments, the payouts can rival and even surpass the
typical pay of a chief executive at an S&P 500 company,
according to four people familiar with Fidelity's payout
structure. Median CEO pay at S&P 500 companies totaled $10.8
million in 2015, according to pay research firm Equilar Inc.
Most of portfolio manager pay is determined by how well
their funds perform against benchmarks like the Standard &
Poor's 500 Index. They also get awards of shares in FMR LLC -
Fidelity's closely held parent company, which is controlled by
the Johnson family. The value of FMR's privately held stock
rises and falls largely based on the performance of the mutual
Fidelity's elite, including top portfolio managers, get an
additional sweetener: lucrative distributions from investments
made by a proprietary venture fund called F-Prime Capital
Partners. The fund is run on behalf of the family of Fidelity
Chief Executive Abigail Johnson and other company insiders.
In some cases, F-Prime's best performing investments - such
as Chinese web giant Alibaba - can add millions of dollars to
their compensation, according to four people familiar with
Fidelity's compensation structure.
Fidelity is not required to disclose any detailed lists of
who receives F-Prime distributions. The company declined to tell
Reuters how many people were entitled to the biggest payouts
But Reuters found that Will Danoff, who has run Fidelity's
flagship Contrafund for 25 years and currently
oversees $100 billion-plus in assets as a solo portfolio
manager, has received millions from F-Prime investments.
After Alibaba's 2014 IPO, F-Prime, an early investor,
distributed shares in the Chinese company to investors. Danoff
was among the group, according to two people familiar with the
Danoff received 46,154 Alibaba shares that cost $3,432, or 7
cents apiece, according to an annual report filed by his
family's private charitable foundation. The cheap stock reflects
how F-Prime made an investment in Alibaba about 15 years before
the company went public.
Danoff's Alibaba shares were worth about $4 million when he
received them. Alibaba went public at $68 a share in the largest
IPO in history.
In May 2015, he donated the Alibaba stock as part of a $5
million gift to his alma mater, Harvard University, according to
disclosures by Danoff's family foundation.
While there's no detailed disclosure about Danoff's Fidelity
compensation, the amount of assets in his family's charitable
foundation has surged to about $70 million in recent years,
according to filings with the U.S. Internal Revenue Service. In
2015, Danoff contributed $31.1 million to the charity, including
$12 million in Contrafund shares that he personally owned.
Danoff declined to comment.
F-Prime's investments are managed by a closely held advisory
firm, Impresa Management. Fidelity said the role of F-Prime and
Impresa in the pay of its portfolio managers does not influence
their stock picks for the mutual funds they run.
"It is simply not plausible that portfolio managers would
invest on behalf of their funds in a way that would negatively
impact the performance of the fund in order to boost the value
of an Impresa investment," Fidelity said in a statement. "Our
compensation model for portfolio managers aligns their interests
with the interests of the funds and other client accounts they
manage, and we believe that relevant conflicts of interest
relating to (portfolio manager) compensation have been disclosed
in the funds' SEC filings required by the rules."
(Reporting by Tim McLaughlin; Editing by Brian Thevenot and