Wall Street’s leading prime brokers including Goldman Sachs and JPMorgan Chase are demanding additional collateral from hedge fund clients as the sharp sell-off in AI-related stocks drives losses across some of the industry’s most crowded trades, according to a report by the Financial Times.
The report cites unnamed market sources as saying that banks have asked funds with concentrated exposure to sectors hit hardest by the recent downturn to post additional collateral in order to maintain existing borrowing levels. The requests reflect heightened concern over the speed of the correction and the potential impact on highly leveraged investment strategies.
The move comes after a broad retreat in AI-related equities ended one of the market’s strongest rallies of recent years. The Nasdaq 100 briefly entered correction territory this week, falling 10% from its early June peak, while several semiconductor stocks that had been among the year’s best performers have suffered steep declines. Sandisk has fallen more than 50% from its high, Intel has lost nearly 40%, and the Philadelphia Semiconductor Index has dropped around 25% since late June.
Unnamed sources familiar with the situation said both Goldman Sachs and JPMorgan Chase have issued additional collateral requests to certain hedge fund clients, although the banks have not publicly commented.
Market participants stressed that many of the margin calls were triggered automatically by contractual risk management provisions rather than discretionary action by prime brokers. As market volatility increases or portfolio values decline, banks routinely require clients to provide more collateral to support outstanding leverage.
The developments underscore the growing focus on leverage within the hedge fund sector. Earlier this month, Goldman Sachs reported that gross leverage among hedge funds increased at the fastest cumulative pace recorded during the first five months of a year since the bank began tracking the data in 2016, suggesting many managers had significantly expanded positions before the recent correction.
Prime brokerage risk teams continuously monitor client portfolios and adjust financing terms where necessary to limit potential losses if markets move sharply against leveraged positions.
The AI-driven sell-off has already weighed on hedge fund performance. According to Goldman Sachs, long-short equity hedge funds were down approximately 1.3% during Tuesday’s trading session, while multi-strategy funds declined around 1.7%. The bank noted that it was the first occasion since the market turmoil of 2020 that all of the major hedge fund strategy groups had fallen by more than 1% on the same day.
Despite the recent losses, hedge funds remain comfortably positive for the year overall, with average returns still exceeding 10%.
The correction has also reignited concerns about concentration risk within equity markets. The ten largest constituents of the S&P 500 now account for roughly 40% of the index, exceeding the concentration seen during the technology bubble of the early 2000s and increasing the potential for broad market volatility when sentiment towards a handful of dominant companies shifts.
Prime brokers themselves also have meaningful exposure to the theme. In a recent client report, Goldman Sachs disclosed that approximately 16% of its prime brokerage financing book was directly linked to AI memory stocks at the end of June, illustrating how heavily both hedge funds and their financing providers have become invested in the sector.
