Hedge funds provided as much as 40% of the money raised this year by U.S. and European banks as they sought to offset losses and meet government capital requirements, according to a Morgan Stanley report.

Financial companies have raised about $200 billion from common stock and rights offerings so far this year, data compiled by Bloomberg show. Worldwide, these companies have taken more than $1.7 trillion in writedowns and credit losses since the crisis began in mid-2007.

Government steps to increase regulation of the hedge fund industry in the wake of recent fraud and trading scandals may be measured, Huw van Steenis, a London-based analyst for Morgan Stanley, said in a report this week.

"We believe some policymakers realize the supportive role providers of risk capital can play," he wrote in the report.

Sovereign wealth funds, foundations and pension funds have overtaken endowments and companies that invest on behalf of individuals as the biggest providers of capital to hedge funds, Morgan Stanley said.

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