June 10 (Reuters) - The rapid growth in retail

investors, who put their money into private markets, could

create liquidity and asset quality risks, Moody's Ratings warned

on Tuesday, highlighting potential vulnerabilities within the

private credit sector.

The rush to court "Main Street" investors is transforming

the traditionally institutional world of private credit, with

asset managers launching new funds tailored to retail demand.

But the shift is also raising concerns about transparency,

liquidity, and underwriting standards, as firms race to deploy

capital amid limited supply of high-quality assets.

Private markets are gaining prominence as public listings

have declined and more companies opt to delist, Moody's said,

adding that with institutional investors facing capacity

constraints, asset managers are increasingly turning to retail

capital to sustain growth.

"Under the current U.S. administration, the regulatory

approach toward the private market has changed, with priorities

shifting from enhanced disclosure requirements to a greater

emphasis on accelerating capital formation," the ratings agency

said in a report.

To meet retail investors' expectations for quicker access to

cash, asset managers are rolling out products with periodic

liquidity windows, Moody's said. But in volatile markets, sudden

redemption requests could strain these funds, creating a

mismatch between available liquidity and what investors expect,

Moody's added.

The ratings firm also cautioned that as competition for

high-quality assets intensifies, some asset managers may take on

greater risks, investing in lower-quality assets to keep pace

with surging demand.