Moody's warns of risks from increasing retail exposure to private credit
Moody's rating agency warns that retail investors face increasing risks in private credit investments. The report points out that since the pandemic, the credit market has gradually shifted towards private credit companies, with managed assets exceeding $20 trillion. Despite market volatility, alternative asset management companies continue to launch funds targeting retail investors, attracting them to invest in private credit. Moody's emphasizes that retail capital can expand the private market, but liquidity must be managed and transparency ensured for long-term success
Reuters, May 7 - Moody's rating agency warned on Wednesday that the risk posed to the U.S. economy by retail investors pouring funds into private credit assets is rising.
A report released by Moody's on Wednesday indicated that since the outbreak of the pandemic, the share of the U.S. and global credit markets has gradually shifted from publicly traded banks to private credit companies. These companies have seen their managed assets grow to over $2 trillion since their establishment in 2014.
Moody's analysts wrote on Wednesday, "Even amid ongoing market turbulence, alternative asset management firms continue to launch funds targeting retail investors, attracting them to invest in private credit and other types of private assets."
Since the pandemic, retail investors have been participating in the private credit space at an accelerated pace. Additionally, exchange-traded funds (ETFs) focused on private credit have also become increasingly popular. Moody's emphasized that the growth of such ETFs could "redefine the channels for entering private markets," provided that appropriate safeguards are put in place.
The report stated, "Retail capital can significantly expand the private market, but managing liquidity and ensuring transparency are crucial for long-term success."
