After years of aggressive lending, private credit firms are entering a tougher phase: managing troubled loans.
But distressed loans don't necessarily mean private credit investors are wiped out. In fact, demand for professionals who focus on squeezing returns out of struggling loans has been on the "uptick for the last 18 months," said John Rubinetti, partner at executive leadership and recruiting firm Heidrick & Struggles.
And now, US private credit has a default rate at 5.8%, according to Fitch Ratings, the highest since Fitch started tracking in 2024, it's more important than ever for firms to have strong workout and restructuring teams to tout to anxious investors.
This is especially important now, as all eyes are on potential distress in private credit. The industry's biggest names are playing defense as retail investors ask for their money back in record amounts.
"Within our credit group, we believe that we possess the largest portfolio monitoring and restructuring teams in the industry," Ares CEO Michael Arougheti said on the firm's February earnings call.
Major players like Ares and Blackstone have long had robust teams that monitor underperforming loans and pull different levers, up to and including taking over bankrupt companies, to ensure their funds continue to perform.
"A lot of funds will look to beef up their portfolio management functions just for increased reporting and to keep watch, and also workout function so that if things go awry, they can try to fix it," Adam Loughran, senior vice president at recruiter Selby Jennings, said.
An analysis of LinkedIn postings by data provider Revelio Labs found that job postings for private credit roles of all types, including restructuring and workout roles, remain below the industry's 2022 hiring peak.
That said, demand for workout specialists persists, as evidenced by current job postings from Blue Owl, Ares, Golub Capital, and Blackstone. Roles for Blue Owl, Golub, and Marathon Asset Management specifically are targeted at the troubled direct lending market.
The search has also evolved as private credit players with growing loan books prepare to take on more active investment roles.
"They might say, 'We now have a large portfolio of companies, and we almost need to think of it like a private equity investor,'" said Rubinetti. This has meant that firms are looking in new places, such as the same portfolio operations experts that are in high demand on the private equity side.
One Blackstone's job posting notes that the skill set is "at the intersection of credit, private equity, and operations."
What workout and restructuring experts do
The workout or restructuring team usually sits underneath a firm's portfolio or asset management team, said Loughran. Those teams monitor the performance of existing loans and prepare annual, monthly, or quarterly performance reports.
Workout teams are a "subset" of this team who "pay especially close attention to troubled credits in the portfolio," said Loughran. A recently posted role for a senior associate on Blackstone's credit asset management team said that the team works to "enhance investment returns in challenging situations."
"Sometimes they'll go through a Chapter 11 restructuring in or out of court," he said. "If you're a lead lender, you can switch out management teams, you can take an equity position. There are lots of different levers you can pull."
This has firms looking across a wide range of potential profiles, from "private equity operating partners, restructuring professionals, even former experienced investment professionals," said Rubinetti.
On the restructuring side, some of these professionals can come from teams that manage underperforming or troubled loans at banks, or from the turnaround consulting shops, said Loughran.
A person familiar with the operations of one of these private credit funds said that some firms prefer to do this work in-house rather than rely on external resources, which is why they have long built in-house teams.
Possibilities and limitations
While turnaround specialists focus on distressed assets, it doesn't mean the job is only stopping the bleeding. Sometimes, it could even mean getting equity-like returns from what was originally a debt investment.
In an X thread from Kent Collier, the CEO of credit research firm Octus, who provided a counter-narrative to the doomer AI-Apocalypse narrative in software, Collier explained how firms could see multiples on invested capital of two times when they're forced to take over companies they've loaned to.
"In the very off-chance you get to own the keys of these companies, buying a software company through a restructuring has the chance of MOICs over 2.0x taking into effect rights and equity discounts," he wrote.
There is a concern, though, that there aren't many professionals at the junior or midlevel with real experience of what a downturn would look like.
The Revelio Labs analysis found that demand was concentrated in midlevel roles, reflecting the importance of "experience typically required to manage restructuring situations," wrote Chief Economist Lisa Simon.
"A lot of folks will be interested in someone that was in the markets in '08, but a lot of those people are very senior," Selby Jennings recruiter Loughran said.
