Outlook: Legal & General

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The Independent Online
WHEN IT comes to business and stock markets, there's no such thing as certainty, but even so NatWest can probably begin to count on at least one thing; the chances of a counter offer emerging to its pounds 10.7bn takeover bid for Legal & General look more remote by the day.

A number of continental insurers have been testing the City's appetite for a counter bid, but since it is stock and not cash that they want to tender, they've been given a distinctly cool response. One reason for this is that UK pension funds and other institutional shareholders on the whole don't want shares in overseas domiciled companies. UK pension fund trustees tend to be deeply conservative people and they stick religiously to the tradition that the vast bulk of funds must be kept in UK equities and bonds.

In some respects this ought to be seen as a good thing, since the effect is that pension fund money is concentrated on British companies and therefore supports British based industry. But in others it is plainly a bad thing, for it means that pension fund members have largely missed out on some of the great overseas bull markets, most notably that on Wall Street, and, as in the L&G case, are depriving themselves of potentially better value available elsewhere.

Since we now live in a global economy in which British employees are almost as likely to work for an overseas owned company as a British one, the underlying raison d'etre of this approach is also open to question. Pension funds obviously have to be fastidious in the rules they apply to investment and over the years a devil-you-know, safety-first policy seems to have served members well.

But with the London stock market increasingly dominated by big international companies with more in common with overseas multinationals like Nestle, Exxon and Merck, than their smaller British -listed bedfellows, there plainly needs to be some sort of a rethink.

Institutional investors in other developed countries already seem more willing to countenance big holdings in overseas listed companies than their UK counterparts if they can see value in so doing - witness that American investors were perfectly happy to swap their US shares in Amoco and AirTouch for British shares in BP and Vodafone.

If these transactions had been the other way round, there would almost certainly have been a deal-breaking stink. In the event they had gone through in this form, there would then have been an unseemly rush to sell out of BP and Vodafone followed by an equally absurd bulking up in other British-listed companies.

One catalyst for change would be joining the single currency. Pension funds would then be forced to look much more seriously at rebalancing their portfolios into other euro-denominated equities. Any outflow so caused would presumably be counterbalanced by an equal and opposite inflow into the UK market from other eurozone countries. Indeed, there are good reasons to believe UK equities might be net beneficiaries.

Unfortunately, all these changes are going to come too late to help the likes of Allianz and Aegon in their quest for a slice of the L&G action.