CIO Keith Dennelly Develops Fidelity's Asset Management Blueprint

keith-dennelly-fidelity
Keith Dennelly, Fidelity Investments

Keith Dennelly talks Anthony Malakian through Fidelity's technology strategy and how it supports his firm's investment processes.

After more than a decade at State Street, Keith Dennelly decided it was time for a change, a decision that led him to join Fidelity, Boston’s “other” buy-side behemoth, just down the street. By Anthony Malakian

In order to develop and succeed in this business, you need a certain kind of drive. Keith Dennelly exhibited this drive early in his financial services career, and in an uncommon way.

Back in 1982, soon after joining Morgan Stanley, his first job in the industry, a few of his colleagues played a practical joke on Dennelly, who had moved to the financial services sector from General Foods Corp. They said he needed to drop a few pounds, so they entered him into the famed New York City Marathon.

Dennelly could have dismissed the joke, said, “Good one, guys,” and gone about the rest of his day—but that’s not the Dennelly way. Rather than ignoring the unsolicited entry, he took it as a challenge and, later that year, completed the 26.2-mile endurance test.

And that was just the beginning. Twenty-seven years later Dennelly has run in 22 NYC Marathons—including this year’s race—completed the Boston Marathon, and has run in numerous other regional road races.

Clearly, this is a man who relishes a challenge. He wants to continually evolve. That’s what led him from the food service industry to Morgan Stanley, and eventually from State Street to his current role as CIO, Asset Management for Fidelity Investments. It’s all about evolution, Dennelly says.

The Next Episode
Dennelly’s latest development phase came after a mid-summer phone call. Last year, then-Fidelity CIO of asset management Steve Neff reached out to Dennelly. He said that he was going to retire and wanted to gauge Dennelly’s interest in jumping ship and coming to work at Fidelity.

The two had met at various forums and industry and networking events. And they were both working in the same field for the two titans of Boston finance. Neff’s question to Dennelly was simple: “How would you like a new challenge?”

Dennelly had been at State Street Global Advisors since 1999. During his tenure, the firm went from about $500 billion under management to nearly $2 trillion. Additionally, assets coming from clients outside of the US had spiked from just 2 percent to about 45 percent.

It’s clear what Neff saw in Dennelly—he had the global experience that being a CIO at Fidelity requires and the institutional chops to add a unique perspective.

What Dennelly saw in Fidelity was clear as well—evolution. He liked the idea of going from a primarily institutional shop to more of a retail shop; going from a quantitative index-investing firm to a fundamental research firm; going from an investment manager with a number of buy- and sell-side subsidiaries to a company founded relatively recently—in 1946 compared with State Street, founded in 1792—with a primary asset management focus. It was truly a new challenge.

“It was a good run [at State Street], a good opportunity and a lot of fun,” Dennelly says. “I feel that I had put a good team in place back at State Street Global Advisors and I was very confident of them, that they could carry on and have room to grow. So I felt good and left on good terms.”

The Blueprint
Dennelly, who manages the investment solutions manufacturing process, officially started at Fidelity in October 2009. He was charged with creating a blueprint for technology that mapped well with the firm’s capabilities and multi-year plan. The questions were: How does the future look, and how can Fidelity get there in a phased way?

This is precisely the way Dennelly likes it. “I feel planning is fundamental to the success of an IT organization. To steal an expression: ‘If you don’t know where you’re going, any road will take you there,’” he says.

As a company, Fidelity is notoriously “keep-it-tight-to-the-vest,” a cultural mentality easily identified during our meeting and photo shoot. In the hallway outside what is called The Map Room, employees would come walking toward us only to turn around or dart into another hallway. “Fidelity employees prefer to walk away from cameras, not toward them,” one employee told us.

So, while Dennelly declined to divulge his blueprint for Fidelity’s technology strategy, he did point to a few accomplishments. First, while cloud computing has yet to permeate the firm’s front office, Dennelly clearly sees the advantages of this new technology.

Back in the mid-1990s, Dennelly was a vice president at Prudential Investments. He still points to that period—at the birth of the internet revolution—as one of the most fun of his career. And cloud, he says, is the new revolution.

The two areas where Dennelly sees the greatest opportunity are in the realms of platform-as-a-service and systems-as-a-service, he says.

On the platform side, made up of various software components built into a framework that’s used by all other applications, Fidelity has developed a framework called Arrow, conceived as a roles-based authentication system. When an employee joins the asset management team, he or she is assigned a role. That role automatically gives that person permission for specific applications, rather than having to hand out multiple passwords or IDs. This way administrators don’t have to manage one individual at a time; they can manage groups.

On the systems side, Fidelity’s research publishing is a service that the firm built internally and to which all of its advisors subscribe, as well as publish their own research notes.

“Cloud computing really drives standardization; there’s definitely a place for cloud-computing concepts in the internal cloud due to this drive toward standardization,” Dennelly says. “I see less applicability in asset management for the external cloud. I think it fits more with corporate functions, not front-office applications. You get 90 percent of the value out of the internal standardization.”

But the work that is being done on the cloud front is being largely created internally, and not outsourced to vendors. In fact, about 80 percent of Fidelity Asset Management business applications are homegrown, according to an estimate from Dennelly.

“When you build it, you can build it against standards, and when you build against standards you can get operating efficiencies,” he says.

One Solution
Most importantly, in today’s environment, Dennelly has worked to create a system of mass customization inside Fidelity. He says that one of the greatest challenges facing the asset management industry is the convergence of the institutional and retail sides of the business from a client’s expectation perspective. The keys to bridging this gap are mass customization and developing solutions that are scalable across a broad spectrum of clients, while still ensuring that the firm is addressing the needs of each individual segment. This way, Dennelly says, you can have one solution that supports both clients and portfolio managers, rather than trying to accomplish that goal in parallel.

“From a technology point of view, the solutions have to be very flexible and very parameter driven—they can’t be fixed in place,” he says.

The two areas that Dennelly points to for this brand of mass customization were in the firm’s portfolio advisory services—which are model-driven, based on the asset allocation side of the business for individual investors—and its tax solution for private portfolio services, which provides investors with a “tax-optimized” solution.

“People are looking for more one-stop shopping, both on the institutional and retail side,” he adds. “Institutions find themselves with 20 or more different investment managers and they are asking themselves: ‘How do we handle all these different relationships?’ So we get 20 different reports that come in and they have to figure out how to handle that. They are looking to consolidate that. They want diversification, but they don’t want to have 20 or 30 different investment managers. On the retail side, people get 30 statements because they change jobs so many times and each time they leave behind a 401(k), so people want to consolidate those relationships and the ability to do that is key.”

Setting Sail
Alone and on a boat—that’s where Dennelly gets his best work done. Actually, it’s a ferry but Dennelly says it might as well be a yacht. As Massachusetts’ landscape goes scrolling by, Dennelly sits at a table and works on what Fidelity’s blueprint will look like for 2011.

There’s a running joke inside Fidelity’s Summer Street office building: If you want Dennelly to read something that you consider important, it’s best to get that proposal to him before he walks down to Rowes Wharf and takes the ferry back to his home in Hingham in order to get the best feedback from him. “I find that I can do a much better job preparing presentations on the boat than I can at my desk. Everybody says: ‘OK, we’ve got to get this to Keith so he can read it on the boat,’” he says. “It’s a very important hour-and-a-half of my day.”

On both the trip to and from work, Dennelly works on project proposals, reviews status and finance reports, and gets updates from the firm’s international offices. He says that what gets him up in the morning and what keeps him excited enough to continue working on the ferry at night, is that his team works to understand, down to the nuts and bolts, the whole investment process and how technology fits into that process. Fidelity is not an organization that keeps IT at arm’s length.

Dennelly says that Fidelity invests about $2 billion annually in technology, across the entire firm, and in speaking with vendors that work with Fidelity, it doesn’t sound as though the firm has cut back much on its spending through the credit crisis.

“We really focus, in my organization, on being asset management IT professionals rather than just being purely technologists. It’s a specialty, if you will,” he says. “Just like in the medical field where you have specialists, we tend to be the specialists in asset management technology, whether it is research, trading, or portfolio management.”

Dennelly says that the greatest mistake—or “learning opportunity,” as he likes to put it—that he made early on in his career, was not putting enough effort into getting various business partners aligned with the same objectives for an IT project. He could have been more of a unifier to gain consensus to achieve success. That has become one of his greatest strengths, he believes.

All Aboard
As Dennelly sits on the ferry and contemplates Fidelity’s technology blueprint for 2011, he’s now right at home. His next challenge will be to get the firm on track with changing regulations that are sweeping the industry—changes like amendments made to Rule 2a-7 for money market funds. But thanks to planning, Dennelly says his organization will be ready for whatever is thrown at the team.

“What I enjoy the most is putting together IT plans and then executing them,” he says. “But my joy is helping an organization evolve. This is what we are going to do—have that be part of the business plan, have the IT deliver, and have the business succeed.”

 

 

KEITH DENNELLY FUNDAMENTAL DATA

Marathon Man: When asked if he could recall his best marathon time, before I could finish the question, he said, “Four hours, 13 minutes. Of course I remember!”

The IT Team’s Greatest Strength: “Confidence without being cocky—that’s what this team’s greatest strength is,” Dennelly says. “They’re confident because they know and trust their business partners. They are confident because they know the technology and because they know that we’re executing a plan that our business partners have agreed is the direction in which we want to go. And they’re confident enough in themselves and in the organization to question the status quo.”

A Day in the Life: Half of Dennelly’s day is spent in “execution mode,” he says. “I have sort of a Darwinist approach to execution. For an IT shop to be successful it has to deliver, but it has to be able to adapt and change to different market conditions and different business environments.” After that, 35 percent is spent in planning mode and the last 15 percent is making sure that proper controls are in place.

Greatest Influence: While he points to his staff as a great source of inspiration and knowledge, Dennelly says one of his college advisors has had a lasting effect on his career. After receiving a degree in economics at SUNY Stony Brook, he earned his MBA in management information systems at SUNY Albany. He says that his advisor, Lakshmi Mohan, “really got me started on my IT career. All the things I’ve learned as part of my MBA I’m still doing, and I’ve been able to use throughout my career.”

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