Wall Street’s push to sell private-equity and private-debt funds to individual investors risks overheating financial markets and backfiring on firms launching the funds, according to Moody’s Ratings.

Private-fund managers have turned to individual, or retail, investors to offset a decline in money raised from traditional clients such as pensions and endowments. But in a report viewed by The Wall Street Journal, Moody’s warned that selling funds to retail clients will introduce new risks to private-asset managers, including “reputation loss, heightened regulatory scrutiny and higher costs.”