Prime brokerage services to hedge funds will generate revenues of more than $5 billion this year, an increase of 28 per cent from 2004, acco...

Prime brokerage services to hedge funds will generate revenues of more than $5 billion this year, an increase of 28 per cent from 2004, according to research published by Morgan Stanley. With revenue growth in 2006 predicted to be 11 per cent, prime brokerage is becoming one of the fastest-growing investment banking areas. Morgan Stanley’s forecasts also highlight the growing importance to investment banks of revenues from hedge funds as margins from their more mature business areas are squeezed. Prime brokerage units within the investment banks are benefiting as hedge funds clients invest in more complex and illiquid instruments to achieve better returns. Leaders in the prime brokerage world are acknowledged as Goldman Sachs, Morgan Stanley and Bear Stearns. Others see the potential, and Citigroup, Credit Suisse First Boston, Deutsche Bank, Merrill Lynch and UBS are investing heavily in this area.