Profit margins at Morgan Stanley's asset-management operation will be squeezed for several more quarters, according to David Sidwell, Morgan’s chief financial officer, addressing a conference in New York.

The pressure has come from the recent spate of acquisitions and outflows from poorly performing funds, he told the conference.

“It will take several quarters before investments in fund managers and hedge-fund companies begin to prove themselves,” he said.

Last month, Morgan Stanley bought hedge fund FrontPoint Partners for about $300 million and minority interests in two other funds with an overall cost of about $800 million.

Owen Thomas, president of investment management at Morgan Stanley said the asset management business would continue to make acquisitions, "although perhaps at not quite the same hectic pace".

The pre-tax profit margin at the asset management unit fell to 25 per cent of revenue in the bank’s first nine months ended 31 August and return on equity was 20 per cent. In Morgan Stanley's investment banking and trading businesses the comparative figures are 37 per cent and 29 per cent.

Mr Thomas said it will take three to five years to achieve the firm's goals of a 30-35 per cent profit margin and double-digit net revenue growth.