Make our pensions support British companies and then others will too, says JAMES ASHTON

James Ashton, chief executive of Quoted Companies Alliance, says we need to lead the way if we want international investors to back British companies.

The several hundred international investors who will gather in the City of London on Monday know well what to expect.

At a government investment summit, you should nod to the UK's illustrious, hard-working past, showcase the promising sectors that could power a high-tech, high-growth economy, and politely ask for help to finance them.

You'd think this wouldn't be a difficult conversation. After all, the UK has a lot to attract smart financiers: advances in drug discovery, green energy, IT and more.

Ideas from every sector that emerge from university campuses are incubated in exciting start-ups that are the envy of the world.

Compared to political and economic uncertainty elsewhere, these coasts appear to be a stable choice – provided there is a concerted effort to build new infrastructure and dispel the recent doom and gloom about our prospects.

But what any international investor might be wise to ask before making a multi-billion dollar commitment to the UK is: if it's such a great place to put your money to work, why don't you back yourself more?

That's true. British pension funds, which a generation ago allocated more than half their assets to UK shares, now allocate a paltry 4.4 per cent. According to the findings of the New Financial think tank, this percentage is among the lowest among all developed pension systems.

Defenders of a long-term shift to bonds point to accounting changes introduced at the turn of the century that encouraged less risk-taking.

Critics say the widespread avoidance of corporate stocks can only partly be linked to bean-counting principles.

This has led to an aberration: Britain is home to the world's second-largest mutual funds industry, and yet across the Square Mile from the glittering skyscrapers of asset management firms, firms are struggling to find investors with an appetite for the stocks they trade.

This results in reduced valuations of companies compared to those whose shares are traded on stock exchanges in countries that follow a national bias to support their own.

The result is cheap acquisitions, fewer public companies, lower tax revenues and jobs going abroad.

British pension funds invest just over 4% of their assets in British shares, not so long ago it was 50%.

As things stand, the spoils of Britain's great breakthroughs are likely to care for more Canadian retirees than our elderly at home, and meanwhile our pension funds are supporting the development of future world winners in another country.

That's why reviewing government investment in pension programs is so important.

To increase investment in productive assets in the UK, it is time for pensions to be required to increase their exposure to UK shares to maintain their tax-favored status.

Alternatively, a voluntary UK share exposure target, closely watched by the government, could be as effective as a formal mandate, with public sector programs leading the way.

If domestic investment in UK shares is sound, it is urgent that funds go to the smallest public companies.

These companies have been hit hardest by the shift of pension funds away from the UK and are less likely to be on the radar of international investors, including those at the Guildhall this morning.

They are closely linked to their local economies and derive twice as much of their revenues domestically as their FTSE 100-listed cousins.

They have enormous potential, and those who trade in the AIM growth market support jobs that are around 50 percent more productive than the national average.

They offer endless diversity, covering geographies and sectors from digital media producers in Glasgow to scanning equipment manufacturers in Abingdon.

To encourage investors to consider smaller stocks, we need to put our money where our mouth is. Ask the Mansion House Compact, a voluntary scheme to channel defined contribution funds into so-called 'unlisted' shares, to allocate one pound in five to the AIM and Aquis markets, where international investors own half of the shares on the Main Market .

British Business Bank, the UK's economic development bank that supports 15 percent of smaller capital deals, is expected to celebrate its 10th anniversary next month with a pledge to support public companies, not just private ones.

Meanwhile, the London Stock Exchange's sister company, FTSE, could help attract more passive funds to the smallest companies by improving their index coverage.

This can't happen soon enough. A recent report by former head of legal and general, Sir Nigel Wilson, found that the UK needs an additional £1 trillion of investment over the next decade to maintain the expected 3% economic growth rate.

That's a lot of cash – even for those with particularly deep pockets who collected today.