From Yahoo Finance: 2025-06-12 06:30:00

Wall Street may be heading towards a Wile E. Coyote-style trap by promoting private equity and private debt funds to retail investors, Moody’s warns. While it could offer new opportunities, unmanaged growth may have systemic consequences. Proceed with caution.

The $1.7 trillion private debt market and $4.7 trillion private equity market are attracting individual investors through new retail products. Moody’s warns of liquidity concerns for retail investors and the risk of insufficient diversification. The financial system could face challenges if growth outpaces industry management abilities.

Moody’s also highlights risks for funds themselves, including reputation loss and regulatory scrutiny if individual investors’ cash access is not managed properly. Making private markets more public could hurt returns, and an influx of cash may lead to compromising underwriting standards. Caution is advised.

Private market funds face the challenge of balancing illiquidity premiums and price stability while managing the influx of cash. Moody’s warns that compromising on underwriting standards or investing in riskier assets to keep pace with inflows could have negative consequences. Strategic deployment of capital is crucial.

Read more: Retail Investors Risk Ominous Opportunity Cost With Private Investments, Moody’s Warns