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| Mr Nova Daly                            | 29 May 2008           |   |   |
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| Deputy Assistant Secretary              |                       |   |   |
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| U.S. Department of the Treasury         |                       |   |   |
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| DC 20220                                |                       |   |   |
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| United States of America                |                       |   |   |
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Dear Mr Daly

# Regulations pertaining to Mergers, Acquisitions and Takeovers by Foreign Persons

I am writing on behalf of the members of our Association who are the
largest single segment of the United Kingdom's institutional investor
community with the equivalent of approximately \$2.5 trillion of funds
under management. They have noted, with concern, reports of the prospect
of a tightening of the regulations that the Foreign Investment and
National Security Act 2007 has prompted. This Act also codifies the
position and role of the existing Committee on Foreign Investment in the
United States (CFIUS). National security is, of course, an entirely
proper ground upon which governments should be able to place constraints
on market activity but it is vital that such constraints be justified on
those grounds and proportionate in their effect.

Our concerns are twofold. Firstly, that the grounds on which objections
will be entertained will be considerably wider than genuine national
security concerns. Secondly, that remedies are to be introduced that
will lead to *bona fide* investors disclaiming rights they would
otherwise be entitled to as shareholders. This would be detrimental to
good governance of investee companies. As institutional investors in our
domestic market we recognise the vital importance of shareholder rights
and are mindful that in the US such rights may be more limited and need
to be strenuously safeguarded.

Although the formal limitation of the scope of regulations to national
security matters is evident there exists a clear perception that in
practice other considerations will be permitted to have a bearing on
constraints and prohibitions that would be imposed under these
regulations. Political pressures would be likely to encourage this. The
signal that this sends, that the USA is not genuinely open to inward
investment generated within a free market environment, is potentially
damaging in point of principle. It is also prejudicial to the interests
of other investors, both domestic and international, in US companies and
through the US financial markets.

Investors into the US need to be mindful of the impact of compliance
costs and any potential legal complications. The existence of the safe
harbour that has been understood to apply for holdings of less than 10%
has provided practical comfort to institutional investors holding shares
within a diversified portfolio, that the regulations as they currently
apply will not cause such difficulties. The clarification that this safe
harbour does not provide a blanket exemption creates additional
uncertainty that will need to be factored in. The notion that investors
may, instead, elect to waive rights that they enjoy as share owners in
order to avoid investigation could lead to portfolio investors, in the
interests of those on whose behalf they invest as fiduciaries, agreeing
to such constraints. This will set back considerably the principle of
good governance and responsible engagement by share owners which
benefits all shareholders. It is unclear to what extent investors would
be asked to waive rights. It is those rights which all shareholders
enjoy by virtue of their ownership of shares and pro rata to their
holdings that are of critical importance and which we emphasise should
not be violated.

I hope the Department of Treasury will recognise that our comments do
not conflict in any way with national security considerations but
instead are about making the US an attractive market to investors and to
ensuring that investee companies can deliver good returns to
shareholders while benefiting the US economy and its citizens.

Yours sincerely

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M W McKersie

Assistant Director

Capital Markets \[m:\\inv\\mmck\\letters\\mar08\\L270608\]