Barclays shifts balance sheet to Asia hedge fund financing

Barclays used an internal auction to shift balance-sheet capacity from macro rates trading to prime financing for Asian hedge funds after hitting internal limits during a surge in artificial intelligence stocks, Bloomberg reported.

The transfer let the bank take on more demand from leveraged funds seeking Asian technology exposure, HedgeCo News said, citing Bloomberg. The limits were reached over the summer. Executives in Barclays' global markets division, led by Adeel Khan, prioritized capital for higher-returning activities, the report said. Barclays also encouraged some clients to add short positions to reduce net financing needs, an approach Goldman Sachs has used, people familiar told Bloomberg.

Financing capacity and its price are being rationed toward clients and strategies banks consider most profitable, the report said. A fund running a concentrated long book in Asian technology may find its access depends as much on the short exposure it carries as on the size of its relationship with the bank, the report said. The due-diligence question is how much of a manager's leverage relies on capacity that a bank can reallocate internally, and at what price.

Bloomberg estimates Barclays' equities division third-quarter revenue at about £865 million, or $1.2 billion, possibly its strongest third quarter since at least 2009. A separate CNBC report cited by HedgeCo News said Goldman Sachs, Morgan Stanley and JPMorgan captured nearly 80% of equity trading revenue among the top five banks so far this year, a combined $52 billion. That revenue was driven by hedge fund borrowing for leveraged bets on AI hardware and Asian semiconductor supply chains.

The report says risks are concentrated. Several hedge funds took significant losses when AI-related stocks fell in July. Barclays had previously declined to onboard one AI-focused fund over concentration concerns.