TODAY NED’S BEDS, TOMORROW…FIDELITY REACHES BEYOND FUNDS

Contrary to popular belief, Edward “Ned” Johnson’s Fidelity Investments isn’t putting all its eggs in one basket.

Despite persistent rumors that the chairman is looking to shed his private-venture division and refocus on the basics that made Fidelity the world’s biggest mutual fund company, he continues to pour hundreds of millions of dollars into other enterprises — from a flashy new Boston hotel to an executive transportation service called Boston Coach operating in 450 cities.

“Talk about creating synergies,” marvels Patrick Moscaritolo, president of the Greater Boston Convention and Visitors Bureau. “Fidelity can now pick you up at the airport with Boston Coach, take you to your room at the Seaport Hotel, bring you to their offices on Devonshire Street for a little business and then chauffeur you back to a nighttime function at the World Trade Center, which they also own.”

Over the years, Fidelity has quietly amassed an eclectic group of 14 non-mutual fund businesses, ranging from telecommunications to publishing to software development. The ventures are all managed by Fidelity Capital, the firm’s venture capital arm.

The strategy has long been criticized by those who say Fidelity has no business dabbling in anything other than mutual funds.

“Wasn’t it Peter Lynch who coined the term diworsification?” asks Russ Kinnel, an analyst at Morningstar Inc., the Chicago-based fund tracker. The reference is to the firm’s legendary star manager, who when he ran the flagship Magellan Fund was known for shunning stocks in companies that expanded beyond their core business.

a leaky cushion

But Fidelity is counting on the side ventures to provide a cushion when the fund business inevitably slows, even though none of the businesses are big money makers and many are losing money.

Rumors that Fidelity is scaling down its sideline businesses first surfaced last year when it sold Wentworth Gallery, a chain of art galleries. Speculation intensified in April when Fidelity sold Worth magazine and the rest of its magazine group.

Two other names often mentioned as candidates for the selling block are Community Newspaper Co., a collection of weekly and daily newspapers around Boston, and Boston Coach.

But Fidelity isn’t acting as if it plans to abandon its non-mutual fund ventures. Last week, the firm broke ground on a $130 million, 16-story office tower in historic South Boston — the city’s first such groundbreaking in nearly a decade. The mutual fund leviathan is building another $100 million office tower in London and is considering other development projects in Dallas, San Francisco and Asia.

That’s not all. In May, Fidelity opened its first hotel, the 427-room Seaport, which some have dubbed “Ned’s Beds.” The same month, the company renamed its Fidelity Publishing unit Devonshire Custom Publishing, a 30-employee business that produces publications for Fidelity and other fund companies.

Fidelity is also spending huge amounts of money on some of its more mature business ventures. Boston Coach, for example, recently replaced its busy fleet of 6,000 Chryslers with Volvos — to the tune of $200 million.

So why is Fidelity, which has more than $692 billion in assets under management, pushing into so many different sidelines?

“Ned will obviously do whatever he wants to do,” says Eric Kobren, a former Fidelity marketing executive whose Kobren Insight Group publishes an independent newsletter about the fund company. “He owns the darn firm.”

Mr. Johnson and his family own 49% of Fidelity’s common stock; the rest is owned by some 50 senior executives at the company.

Still, you could call Fidelity Capital Mr. Johnson’s playground, a forum for the 67-year-old chairman to exercise his entrepreneurial bent. Fidelity lore has it that Mr. Johnson started Boston Coach in 1984 after he couldn’t get a cab at Boston’s Logan International Airport.

Perhaps Mr. Johnson (who declined to be interviewed for this article) articulated his interest in Fidelity Capital best in 1993, when he reportedly said in a company publication: “I want Fidelity to learn how to remake itself, because certain businesses will run out at some point in time. So why not plant seeds that would become new Fidelitys?”

By all accounts, Mr. Johnson thinks commercial real estate could become the new Fidelity. After dabbling in real estate acquisitions and development for a few years, Fidelity turned its full attention to the business last October. It hired Peter Madsen, a prominent Boston real estate developer, to head its newly formed Pembroke Real Estate.

BIGWIGS WANT IT

“We’re jumping at this quite aggressively,” says Mr. Madsen. “We have the interest of a lot of senior people of this company.”

So far, Pembroke has several projects in the works. In addition to the office tower it’s building in Boston, Fidelity is renovating an 11-story, 220,000-square-foot office building there that will house such tenants as rival fund firm Eaton Vance Distributors.

It’s also talking about building a twin for the 16-story tower now under construction.

Fidelity is focusing on Boston’s commercial real estate market at a time when prices are at all-time highs. Average rent is $32.01 a square foot, up from $29.60 at the end of 1997.

With between 3 million and 4 million square feet of office space owned or leased, Fidelity controls 6% to 7% of the city’s inventory, real estate observers estimate. It also is Boston’s biggest tenant.

Fidelity isn’t limiting its ventures to Boston, of course. The six-story office building in London — to include a restaurant and retail shops — is scheduled to begin going up in September and be finished by the end of next year.

While Fidelity is relatively new to the commercial real estate business, it comes to the game with a lot of financial muscle. Case in point: Fidelity is one of the few Boston developers with the money — and guts — to build an office tower before tenants are lined up.

“They also have the ability, in some of these projects, to fill their projects with their own people.” says Barry Hynes, a managing director at the Boston office of Cushman & Wakefield, a national commercial real estate company. “Between that and their money, they certainly have a competitive advantage over some other developers.”