City financiers decamp from Square Mile to period properties of Soho and gleaming Docklands towers

The City of London, already under threat from the gleaming towers of Docklands, is facing a new exodus as the capital's bankers head across town to the period properties of the West End.

No less an authority than The Economist, has rated the area around St James's, Soho and Mayfair as a "financial centre of international stature" to rival Frankfurt.

About 100 financial institutions have already decamped and the migration is now paralleling the relocation of large international banks to Canary Wharf, marking a further erosion in the status of the Square Mile. Since early in the 1990s, the area south of Oxford Street has proved increasingly popular among smaller investment companies, such as hedge funds and venture capitalists, requiring the prestige of period offices rather than vast trading floors.

By relocating, they are closer to the wealthy individuals and FTSE companies on whose behalf they invest vast sums. Many have come to the conclusion that in the information age they can afford to move away from the traditional City institutions to a more convivial part of town. By voting with their feet they have created a boom at the "hedge fund haunts", such as Quaglinos and Petrus in Mayfair, and Che and Just on St James's Street.

Stephen Georgiadis, managing director of the investment company Altium Capital in St James's Square, said: "Companies felt obliged to be in or near the Square Mile because if they were raising capital they felt they need to be near the source.

"That is less the case as you can communicate remotely now. Besides it is more human and civilised here compared to the buildings in the City, which are silos for lost souls."

The Economist says that St James's, otherwise renowned for its antiquated gentlemen's clubs, has become "the undisputed home" of the European hedge fund, a high-risk investment famously exploited by George Soros that gambles on stock and currency fluctuations with a typical stake of £100,000-£500,000.

Clustered in one of the capital's most expensive areas, the companies include such prestigious names as Soros, Kohlberg Kravis Roberts,Blackstone and the lesser-known Camomile, TT and Zebedee. Researchers from The Economist estimate that together they manage funds of about $150bn (£95bn). The 154-year-old investment bank Lazard will strike a further blow for the area when it relocates to offices for 450 staff near Green Park after 30 years at Moorgate in the City.

A spokeswoman for Lazard said: "Some of the historical reasons for our being in the City are no longer valid and we feel we can serve our clients better through moving west."

The Economist's report concluded: "For the family man the area is convenient for London's most expensive family houses in Holland Park and Notting Hill Gate. The shops, restaurants and bars are good. And the hedge funds don't need to worry about being close to the City to shorten their journey times to meetings. These days they manage so much money that the City boys come to see them."

A spokesman for the Corporation of London, the local authority overseeing the City, said: "The financial sector has outgrown the rest of the economy to such an extent that there was never any chance of containing it within the Square Mile.

"If you are dealing with a small number of wealthy people rather than dealing with businesses from all over the world, then the West End is a good place to be for a more sedate business environment."