Hedge Funds
Barclays moves capital from rates desk to prime lending as Asian hedge funds pile into AI stocks
After hitting its financing limits for Asian hedge fund clients over the summer, the bank reallocated balance sheet through an internal auction, Bloomberg reported.
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Barclays shifted capital away from its macro rates traders and into its prime financing business earlier this year so it could keep lending to hedge funds betting on Asian technology stocks, Bloomberg News reported on Tuesday, citing people familiar with the matter. The transfer was settled through an internal auction of balance sheet capacity.
The bank had reached its maximum financing limits for Asian hedge fund clients over the summer, prompting the reallocation inside the global markets division run by Adeel Khan. Barclays also encouraged some clients to add short positions, which lowers their net financing needs; Goldman Sachs took a similar approach, according to the report.
Concentration risk is a live concern. Several hedge funds took heavy losses when AI-linked stocks fell in July, among them Situational Awareness, which Barclays had earlier declined to take on as a client over concentration worries, Hedgeweek reported, citing Bloomberg. Analyst estimates compiled by Bloomberg put Barclays' third-quarter equities revenue at £865m ($1.2bn), which would be its best third quarter since at least 2009.
Why it matters: prime brokerage capacity is becoming a scarce resource. Goldman said earlier this month that demand for equities financing still outstrips industry supply, and UBS is also steering equities balance sheet towards prime services. Managers running concentrated, net-long Asia tech books may find terms harder to secure, especially after Goldman prime data showed Asia-focused fundamental long-short funds lost 6.8% in the first half of October.