Inside MassMutual

This is a partial transcript from "Your World with Neil Cavuto", January 7, 2004, that was edited for clarity.

Watch "Your World w/Cavuto" weekdays at 4 p.m. and 1 a.m. ET.

NEIL CAVUTO, HOST: Is your mutual fund safe? After scores of them were walloped last year on allegations of fixed trades, high fees, things seemed to have calmed down. A good time to come back into the water?

Well, let’s ask Robert J. O’Connell, whose MassMutual Financial Group, through its Oppenheimer funds and scores of other investment vehicles, is among the world’s largest financial players.

Mr. O’Connell, good to have you. Thanks for coming.

ROBERT O’CONNELL, MASSMUTUAL FINANCIAL GROUP CEO: Thank you. Good to be here, Neil.

CAVUTO: We were saying in the last break here that this is what is going on now. The chickens are coming home to roost. You know, Martha Stewart and Andrew Fastow and maybe Dick Grasso, and all this stuff. Is this closure year?

O’CONNELL: I think it very well may be. I think I would hope that all of the major scandals are behind us and that now we can move constructively toward creating regulatory environment that improves the way in which information is provided to consumers and customers.

And I think you alluded to the mutual fund issues. I fully expect we’re going to see some very strong regulations coming out of the SEC in the way of governance and board disclosures.

CAVUTO: But do you fear that they’ll overdo it? I mean, Eliot Spitzer setting fees for Alliance Capital?

O’CONNELL: I think a lot of the changes, fee disclosures, more information for consumers are very, very helpful.

CAVUTO: But it’s more than fee disclosures. It is setting fees.

O’CONNELL: Well, there is danger, I think, what I refer to as politicians who come to the scene after the battle is over and then shoot all the wounded. And there is an element of that.

Some of the changes being suggested forced negotiations of fees, or a 4:00 p.m. close on mandated funds, that could really hurt the small and average investor. And that is not something I think in the long run the SEC wants.

CAVUTO: Are you surprised that average investors didn’t just leave mutual funds in mass? Now, some of the ones that were targeted they did, but again, by the time, you know, mid December rolled around, they were back in vogue.

O’CONNELL: No, I think quite the opposite. I think the mutual fund investor, the average investors are a lot smarter than many of us may think they are. And they recognize that some of the scandals were not in fact affecting their mutual funds. And even in those funds that were being abusive, to the extent that there was any direct loss, it might have been in the pennies.

CAVUTO: Yes, but you know what I think, Mr. O’Connell? A lot of people just didn’t understand it.

O’CONNELL: Well, they stayed in. Our cash flow at Oppenheimer -- and of course we were squeaky clean through this process -- but our cash flow was at record levels throughout the year, as it has been for two years.

CAVUTO: Let’s talk a little bit about that cash flow and investor sentiment right now. We are told we can’t have another year like 2003. Do you buy that?

O’CONNELL: Oh, I think it’s going to be another good year, with double-digit increases in the equity markets.

CAVUTO: Really?

O’CONNELL: Perhaps not as strong as 2003, but I think in the second year of a major move like this, I think it’s going to be very positive pretty much across the spectrum. Not only in the equity markets, but I think in many of the other financial areas.

CAVUTO: A lot of people worry, though, that people have gotten ahead of themselves, they’re getting a little giddy. We haven’t had a big correction since, what, early last spring.

O’CONNELL: Well, there may be a minor correction, I think. And I think we have to watch out for...

CAVUTO: What’s a minor correction?

O’CONNELL: Oh, I think a minor correction would be in the 3 to 5 percent range. I don’t see a major correction. But you’ve got to worry about...

CAVUTO: That would be about 600 points at these levels.

O’CONNELL: But you know, the way the market has been moving, I think that in some cases could be healthy. But you have to beware of a Parmalat kind of major scandal that could shake the markets a bit.

CAVUTO: Do you think that that is in the footing here? We have looked at a lot of American companies with ties to Parmalat that’s now in an Enron-type scandal. Do you see others following that?

O’CONNELL: I think that is a real possibility. Because I think the hidden story behind Parmalat, in my view, is not purely the fact that there might be some alleged criminal wrongdoing. It’s what I refer to as the American institutional fund’s lazy man’s approach to investing.

There is a very highly regarded, well-respected American company that has $384 million, 17 percent of their capital in Parmalat. At MassMutual, we, for example, mandate that no investment can be greater than $50 million. My investment people have to make eight different investments to get to $400 million.

CAVUTO: So you are not Parmalat-exposed.

O’CONNELL: We only had a minor $3 million in Parmalat, I think.

CAVUTO: And that money is gone?

O’CONNELL: Oh, I think the Parmalat money is gone, and everyone recognizes it. But I think regulators and stock analysts and rating agencies are going to look a lot more closely at the degree to which a lot of institutional investors put $400 million in their single investment, check their watch, say they are finished for the day, and go home to dinner. It is much more prudent to take -- we have to -- as I said, we have to find eight prudent investments in order to do what other companies are doing with one check. And that’s tough.

CAVUTO: Robert J. O’Connell, the big cheese behind MassMutual Financial Group, good seeing you. Thank you very much.

O’CONNELL: Good to see you again, Neil. Thank you.

CAVUTO: We’ll see you soon.

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