Prove what Britain's worth, says MAGGIE PAGANO

Amid the ongoing blame game over SoftBank’s decision to float Arm in New York rather than London, lies one irreducible fact that doesn’t get enough attention: Over the past 20 or so years, investors Britons have fallen in love with UK stocks.

The figures from the New Financial think tank speak for themselves.

UK pension funds once owned 39% of all companies listed on the London Stock Exchange and now only own 6%. UK insurance funds once invested 27% of their portfolios, they are now at 5%, while UK asset managers now invest only 10% of their allocation, compared to 26% twenty years ago .

This huge shift from equities to bonds – actively encouraged by the authorities and which indirectly led to the explosion of liability-driven investing (LDI) – had several devastating effects on the growth of UK businesses, the way in which capital is allocated and the depth of the London capital markets.

More importantly, it has also changed the mood and culture within the investment environment, making all UK investors risk averse.

Sense of sinking: Over the past 20 or so years UK investors have fallen out of love with UK equities

This, in turn, has led to much lower corporate valuations compared to their US, and even European, counterparts.

So you can’t blame those high-growth or more mature companies, especially those in the tech sector, who look eagerly across the Atlantic to see the multiples achieved by their peers.

Indeed the climate here has dried up so much that several managing directors of some of the UK’s most exciting and advanced life sciences and biotech tell me they go straight to US funds to raise money because the venture capital funds here don’t want to know.

If big UK companies can’t get domestic investors from their own pension funds to back them, then why would overseas investors want to follow?

Anything else being pointed out by the Arm debate as an explanation of why the city loses to New York – the UK’s strict registration requirements, criticism of high salaries or even ESG concerns – is a distraction.

While attempts to improve and reform London’s capital markets, such as the Chancellor’s Edinburgh Reforms and the Hill Review, are laudable, they miss the big picture.

A City figure said it more clearly: there are no domestic equity investors here, everything else is just a symptom. He said global investors are looking to domestic investors for the validation signal, “and the local signal has just wavered.” Some might say the power was also cut off.

It is therefore significant that London Stock Exchange chief executive David Schwimmer referred to the collapse of domestic funds investing in UK companies when asked about his reaction to Arm’s move to New York, saying the withdrawal of the shares raised “really interesting questions”.

It certainly is, and it would be interesting to hear more from American Schwimmer about how that can be changed.

It’s not for lack of capital: the UK has the second largest pool of long-term capital in the world after the US. Only by getting these pension funds to back British businesses again does the City hope to create a healthier climate for growth and innovation, and show companies like Arm why they should choose London – as well than New York. (Authorities on both sides of the Atlantic should also consider changing the rules to make double listings easier and cheaper).

Persuading pension funds to fall in love with equities again will be more difficult than getting out of it: it always is. This will require serious thought – and a big structural change – by the industry, in collaboration with the authorities. But admitting there is a problem is a good start.

Another problem is the ease with which successive governments have given the green light to foreign bidders snapping up British firms on the cheap.

SoftBank’s initial takeover of Arm in 2016 and Schneider Electric’s more recent bid for electronics company Aveva come to mind. That’s why it’s so ironic to hear former Chancellor Philip Hammond lament that London has become a less attractive location due to listing criteria and lack of equity.

It was under Theresa May and Hammond that Arm’s offer was accepted despite huge outcry, intense lobbying by the founder and fears for safety.

What myopia and what hypocrisy!