Pension fund trustees will hold urgent meetings this week to decide whether to let more than 5% of their assets be invested in Vodafone, after its takeover of Mannesmann.

Vodafone now faces the danger that it may limit its support from UK pension funds if it wishes to grow further while retaining a UK listing. One source said: "We are getting to a situation where, if Vodafone seeks to expand further, it will be cutting itself off from UK pension fund support. It will have to increase its support in the US.' Rules followed by a majority of pension funds demand that no more than 5% of their assets be invested in a single stock. Post-merger, Vodafone is likely to comprise around 14% of the index, and just over 6% of pension fund assets. Actuaries Bacon & Woodrow have suggested to their clients that they should stand by their 5% guns. "We have discussed the situation at some length,' says B&W's Nick Fitzpatrick. "Clients will need to make their own decision, but we would be increasingly unhappy if the stake rises beyond 5%.' Other consultants argue that rules can be relaxed to a maximum of, say, 8%: "But we can go no higher,' said one. Fitzpatrick suggests that pension funds may need to consider changing their benchmarks to reduce their reliance on very large UK-listed stocks: "The multinational index in which we have been involved is one alternative benchmark which would reduce risk. But there are other indices which could be used.'He added that very large UK companies may need to consider taking a listing in the far broader US market: "A Glaxo/SmithKline could easily move its listing, given it wants to run operations from the US.' Elsewhere, the Financial Services Authority has said that it will set out proposals this week for passive fund managers who are worried that their UK equity retail funds will be bound by a regulation not to invest in more than 10% of a single company. In the case of Vodafone, one FSA source said that managers could choose to transfer investments into another telecom company immediately without needing to consult clients. Consultants point out, however, that the UK market does not have a mobile telecom stock which can precisely replicate Vodafone. Trading in Vodafone hit a peak on Friday, with 1.3bn shares traded, as passive managers worked to bolster positions prior to completion of its merger. "We've been asking pension funds to clarify their position for some time,' said one investment manager. "But they don't like to move until situations become certain.'