(Reuters) – The rapid growth of retail investors, which put their money on private markets, could create risks of liquidity and quality of assets, warned the marks of Moody’s on Tuesday, highlighting potential vulnerabilities in the private credit sector.
Investors Rush to Court “Main Street” transform the traditionally institutional world of private credit, asset managers launching new funds adapted to the request for retail.
But the change also raises concerns about transparency, liquidity and subscription standards, while businesses rush to deploy capital in the middle of the limited offer of high quality assets.
Private markets are gaining importance because public lists have decreased and more companies choose to delimit, said Moody’s, adding that with institutional investors confronted with capacity constraints, asset managers are increasingly turning to retail capital to support growth.
“Under the current US administration, the regulatory approach to the private market has changed, the priorities going from uncomfortable disclosure requirements to an emphasis on the acceleration of capital training,” said the rating agency in a report.
To meet the expectations of retail investors for faster access to species, asset managers deploy products with periodic liquidity windows, said Moody’s. But on the volatile markets, sudden redemption requests could scour these funds, creating a gap between available liquidity and what investors expect, added Moody’s.
The rating company has also warned that, as competition for high -quality assets is intensifying, certain asset managers can take higher risks, investing in lower quality assets to keep up with the pace of growing demand.
(Report by Prakhar Srivastava in Bengaluru; edition by Maju Samuel)
