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Portfolio > Alternative Investments > Hedge Funds

Fidelity Spins Out Group Managing Long/Short Asset

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BOSTON (–Fidelity Investments gave up its ownership stake in Geode Capital Management LLC, a unit set up to run quantitative long/short equity strategies.

But the mutual fund giant will continue to invest with the firm, while some Fidelity employees and members of the Johnson Family, which founded the firm, will continue to own a stake in the company, said spokeswoman Anne Crowley.

Geode Capital has US$391 million in its Geode Investors LLC fund, according to a regulatory filing. Geode also will take over management of Fidelity’s passive index funds, which have US$28.8 billion in assets, but will manage them in a sub-advisory agreement, Ms. Crowley said.

Running the now separate firm is Jacques Perold, who also managed Geode when it was a unit of Fidelity. He had worked for Fidelity since 1986. Charles B. McDevitt is Geode’s chief operating officer and chief compliance officer, according to the federal filing.

Ms. Crowley said Fidelity spun Geode off because it didn’t really fit with the philosophy of the firm, which is centered on fundamental active equity management, as opposed to the quant and passive approaches of Geode. “We try to provide a broad product line,” she said.

She added that Geode now can build its capacity and has a staff of 25 people, most of them from outside of Fidelity.

Geode attracted attention earlier this year as it appeared to be a first move by Fidelity toward offering hedge funds to outsiders. But Ms. Crowley said this move isn’t necessarily a step away from hedge funds because Geode wasn’t viewed by the firm as a step toward them. The long/short equity strategies used by Geode are not aggressive in terms of shorting, and Fidelity will continue to offer a market neutral strategy to institutional clients as it has for years, she said.

Some viewed Geode’s existence as creating a potential conflict should the firm short stocks held long in Fidelity mutual funds, an issue facing other traditional managers who decide to invest on the short side.

Fidelity will continue to invest corporate money with the spun-off firm and will maintain its use of Geode as an incubator of new strategies.

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