The US Securities and Exchange Commission (SEC) is to investigate prime brokers and the services they provide to hedge funds as part of its continuing probe into the industry.

Speaking before a US Senate committee last week, William Donaldson, chairman of the SEC, said prime brokerage practices would be investigated as part of his effort "to look deeper at both the risks and rewards" of hedge funds. He added that he thought there were many unanswered questions regarding the industry.