Morgan Stanley beat rival investment banks to become the biggest supplier of prime brokerage to the lucrative European hedge fund market in 2006, according to the latest survey by EuroHedge magazine.

Morgan Stanley increased its mandates from 309 to 374 and topped the table of client assets held, with $115.5 billion (£57.6 billion) under its care, up from $83 billion, despite what EuroHedge described as intense competition from rival banks.

EuroHedge said that Morgan Stanley’s success appeared to stem from the “tremendous” growth of its existing clients rather than through winning new customers. The bank held about 30 per cent of last year’s prime brokerage market, with big-name clients including Lansdown, Sloane Robinson, Tosca and Egerton.

Goldman Sachs — with 336 mandates, up from 295 — was second to Morgan Stanley in the race to win the sought-after contracts to provide clearance, settling, stock lending and other financial services to hedge funds. The bank was also second on client assets, with $63.7 billion.

UBS came in third for its 2006 performance, after its mandates rose from 120 to 169 over the 12 months to December 31. On client assets it was beaten by Deutsche Bank, which held $40 billion, against UBS’s $39.8 billion.

Other strong performers included Credit Suisse, whose mandates jump from 96 to 126 and for which assets held rose from $15.3 billion to $27 billion, in part because of growth with big existing clients such as Brevan Howard. Merrill Lynch doubled its prime brokerage assets last year to more than $8 billion, mainly by winning new fund mandates.

Prime brokerage, previously a less well-known part of investment banking, has come to prominence in recent years as banks have sought ways to get access to hedge funds in order to sell a wider range of products.

As the hedge fund industry has expanded, smaller banks have begun to seek a share of the prime brokerage market, previously dominated by Morgan Stanley and Goldman Sachs. Most large funds now have more than one prime broker. Ninety per cent of European prime brokerage business is done in London, serving the 900 hedge funds based in the City.

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