Erin Sullivan, Rising Fidelity Star, Quits to Form Hedge Fund

Erin Sullivan, a rising star at Fidelity, quit as manager of the $17.2 billion (FDEGX Quote)Aggressive Growth fund Monday to form her own hedge fund.

Although several Fidelity managers have recently left to cash in on hot returns from last year, this appears to be a much bigger deal. Four Fidelity funds changed managers in the wake of her resignation.

"She was, in my mind, the next Peter Lynch at Fidelity," says Jim Lowell, editor of independent newsletter Fidelityinvestor.com, referring to the former manager of Fidelity's flagship (FMAGX Quote)Magellan fund. "She steered that fund to great returns in a narrow market by going anywhere, by finding performance wherever it was."

The 29-year-old Sullivan took over the fund in April 1997 and proceeded to shoot the lights out. Coming off two years in which the fund lagged its average peer, Sullivan posted a 43% return in 1998 and a 103% return in 1999, outpacing 85% of the fund's large-cap-growth peers, according to Morningstar.

Sullivan achieved those returns by betting on the hottest growth stocks. At year-end nearly half of the fund was invested in technology stocks. She ranked second among the firm's domestic diversified-fund managers (after Neal Miller of (FMILX Quote)New Millennium) in Lowell's most recent manager rankings.

The resignation wasn't expected, say Fidelity officials, but the firm will labor on as it has in the past when managers have left.

"We have a number of very talented people here. We're always sorry to see people like Erin leave, but when you have an investment organization as large as ours, you'll have people leave," says Fidelity spokeswoman Anne Crowley.

Robert Bertelson will leave Fidelity's (FOCPX Quote)OTC fund to run Aggressive Growth. Jason Weiner, now running (FCONX Quote)Contrafund II, will replace Bertelson on OTC. Adam Hetnarski will take over Contrafund II and Doug Chase will replace him on (FEXPX Quote)Export and Multinational. Chase had run several sector-specific Select portfolios in the past, and will continue running the U.S. equity portion of (FWWFX Quote)Worldwide.

All the changes are effective immediately. Lowell said investors should carefully review the changes, noting that Bertelson's record has been spotty. "Bertelson has to step up to the plate in a way he's been unable to do in his past career," says Lowell.

Sullivan was not available for comment. Interestingly, the announcement appears to have come first from her own public relations firm, not Fidelity. Typically, Fidelity makes the announcement and declines to note where a departing manager is going.

More than 20 Fidelity funds have changed managers over the past four months. Fidelity runs over 300 funds, and manages more than $955 billion.

Most of the changes were in the wake of George Vanderheden's retirement and a spate of sector-fund managers leaving following strong 1999 performances. This move might reflect Sullivan's aggressive management style. Apparently, she's confident she can keep posting solid returns without Fidelity's deep bench of analysts, and keep drawing money without the Fidelity brand.

Sullivan joined the nation's largest fund shop in 1991 out of college and became an analyst following various sectors, including medical technology, retail and software. She managed (FSRPX Quote)Select Retailing from February 1995 to January 1997. Then she took the reins of (FSCSX Quote)Select Software & Computer Services prior to taking over Emerging Growth (now Aggressive Growth) in April that year.