Barclays shifted capital from its macro rates trading business to expand lending to hedge fund clients in Asia after reaching internal financing limits amid a surge in artificial intelligence stocks, according to a report by Bloomberg.

The bank used an internal auction to transfer balance sheet capacity from rates traders to its prime financing business, allowing it to accommodate growing demand from leveraged hedge funds seeking exposure to Asian technology stocks.

Barclays had reached its maximum financing limits for Asian hedge fund clients over the summer, prompting executives to prioritise capital allocation to higher-returning activities within its global markets division, led by Adeel Khan.

The move highlights mounting pressure on prime brokers to meet hedge fund financing demand while managing balance sheet constraints. Prime brokerage has become a key driver of equities revenue across major investment banks, supported by increased leverage and trading activity.

Barclays also encouraged some hedge fund clients to increase short positions to reduce their net financing requirements, an approach similarly adopted by Goldman Sachs, according to people familiar with the matter.

The expansion comes despite heightened risks associated with concentrated AI exposures. Several hedge funds suffered significant losses when AI-related stocks declined in July, including Situational Awareness. Barclays had previously declined to onboard the fund over concerns about concentration risk, Bloomberg reported.

Barclays' equities division is expected to report third-quarter revenue of £865m ($1.2bn), according to analyst estimates compiled by Bloomberg, potentially its strongest third-quarter performance since at least 2009.

Financing demand is also exceeding available capacity elsewhere on Wall Street. Goldman Sachs said earlier this month that strong demand for equities financing continued to outstrip industry supply, supporting pricing and allowing the bank to remain selective in deploying capital.

UBS has similarly indicated that it is allocating its equities balance sheet more selectively to support prime brokerage activity.

The developments reflect intensifying competition among banks to capture hedge fund financing revenues as leveraged trading strategies place growing demands on prime brokerage balance sheets.