Private credit - once a quiet corner of institutional finance - has become one of the fastest-growing segments of the global investment landscape. With assets under management (AUM) now exceeding $1.6 trillion, the private credit market has been increasingly attracting interest from retail investors, ushering in a new era of democratized access to non-bank lending strategies.

This surge in retail appetite for private credit reflects broader themes in today’s financial markets: the quest for yield, disintermediation of traditional banks, and the expanding role of alternative investments in retail portfolios. However, as inflows accelerate, so do the concerns. Prominent among them is liquidity risk—a key warning highlighted in recent research by Moody’s.

What Is Private Credit?

Private credit refers to non-bank lending provided to companies or projects that do not issue publicly traded debt. This includes strategies such as:

• Direct lending to mid-market companies
• Real estate debt
• Asset-backed lending
• Distressed credit
• Specialty finance

Historically, access to these strategies was confined to institutional players - pension funds, insurance companies, and endowments - due to the opaque nature of the market, complex structures, and long investment horizons. But innovation in fund structures and regulatory frameworks is changing the game.

Retail Investors Enter the Arena

The past three years have witnessed a proliferation of interval funds, non-traded BDCs (business development companies), and private credit mutual funds, all designed to allow individual investors to gain exposure to high-yield private credit products without navigating traditional barriers.

According to a recent Preqin report, retail capital now comprises over $180 billion of global private credit AUM - nearly 12% of the market - up from just 3% in 2020. Platforms like Blackstone’s BREIT and Owl Rock’s OBDC have attracted billions in retail inflows.

Others, including fintech-native offerings from Capital Engine® and alternative marketplaces , are streamlining direct participation for accredited and mass-affluent investors alike.

This access is appealing for several reasons:

• Attractive yields: Private credit can offer returns between 8–12%, significantly higher than public bonds.
• Diversification: These assets tend to have low correlation to public markets.
• Inflation protection: Many loans are floating rate, providing a hedge against rising interest rates.

The Moody’s Warning: Liquidity Risk

With growth comes responsibility. In a May 2025 report, Moody’s cautioned that the growing share of retail capital in private credit could present systemic liquidity concerns, particularly if investors are misaligned in terms of redemption expectations.

Unlike public bonds, private credit investments are illiquid, complex, and long-term in nature. While retail-friendly wrappers like interval funds provide limited redemption windows, many retail investors are unfamiliar with the risks associated with liquidity gating, loan impairments, and limited transparency in private markets.

Moody’s warns that in a downturn scenario or credit event, “a mismatch between retail investor expectations and underlying asset liquidity could lead to forced selling, NAV impairments, or fund gating events.”

The Role of Technology and Platform Oversight

To mitigate these risks, digital platforms are stepping in with tools to:

• Educate investors through data-rich dashboards and structured learning paths
• Manage liquidityvia structured redemption schedules and real-time portfolio analytics
• Support compliance by integrating investor accreditation, KYC/AML, and suitability assessments

Capital Engine®, for example, offers an institutional-grade investor management platform with embedded risk disclosures, scenario planning tools, and redemption modeling—all designed to align investor behavior with the underlying realities of private credit investing.

Private credit – it’s more than just return

While private credit can deliver attractive yield and total return, many of the loans are secured and may pose lower default risk than comparative public bonds.

What Comes Next?

While private credit’s retail boom is an exciting frontier for capital markets, it demands a renewed focus on transparency, investor education, and responsible distribution. For issuers, platforms, and regulators alike, the priority must be ensuring that innovation in access does not outpace the guardrails needed to protect investors.

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