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As private credit faces rising stress from higher rates and economic uncertainty, funds are building in-house restructuring and workout teams to protect portfolio value. This article explores why this shift matters, its impact on hiring, and how operational expertise is becoming a strategic differentiator for investors.
With scale comes complexity: rising interest rates, tighter liquidity and a tougher economic backdrop have combined to increase stress in private credit portfolios. The net effect is a clear and growing demand for in-house restructuring and workout expertise within funds. This was previously a capability outsourced to external advisors but is now regarded as an essential for funds seeking to preserve the value in their portfolio.
Higher interest rates have changed the dynamics within leveraged capital structures. For borrowers who financed in a zero-interest-rate environment, the jump in base rates has increased debt servicing costs and raised refinancing risk. Similarly, businesses aren’t trading at the same levels and slower growth, supply-chain pressures (especially in the wake of Liberation Day) and pockets of sectoral weakness – notably retail – have amplified the likelihood of covenant breaches, amendments and formal insolvencies.
Market commentators have flagged these strains: journalists and analysts point to pockets of weakness within loan portfolios even as overall fundraising remains robust. Bloomberg+1 (gated)
A more optimistic view might argue that this is simply a natural after-effect of a growing investment product. With a growing number of assets in the portfolio, law of probability suggests that you’re bound to encounter more issues. Whether or not you subscribe to this sentiment is immaterial. There are strains, and these developments matter to lenders and their investors.
Where previously loans could be managed through monitoring, and outsourced services from law firms or restructuring boutiques, the current environment demands internal solutions, coordination and speed. Additionally, it becomes economically sound to employ experts rather than outsource, and funds increasingly prefer to own the process and its outcomes themselves.
Private credit firms are responding by hiring restructuring specialists and establishing formal workout teams. Recent reporting documents a wave of job postings and direct hires for professionals with liability-management, distressed-debt and turnaround experience. The Wall Street Journal, for example, has catalogued several major private-credit and alternative asset managers that are building or expanding restructuring capabilities. The Wall Street Journal
Within Dartmouth’s own market coverage, we have seen both mid-market and large-cap investors seek to solve for this problem.
The rationale is straightforward. An embedded workout team enables a fund to mobilise quickly when stress emerges, to align the strategy with fund economics and investor expectations, and to negotiate with better continuity. In practice, this means recruiting from a specialised talent pool – restructuring bankers, distressed-debt investors, turnaround operators and restructuring lawyers.
The supply of such specialists has tightened in conjunction with the increased demand, and compensation for mid-to senior-level restructuring hires can be materially higher than those individuals whose role is to monitor a performing portfolio. Reporting from the Wall Street Journal also suggests top-of-market packages for the most experienced hires. Additionally, Dartmouth’s own benchmarking indicates that these hires are often paid in line with investors.
The trend is visible across the ecosystem. Large managers and established boutiques alike have either advertised roles explicitly for workout professionals or have hired recruitment agencies to find the appropriate solution.
This trend is not only seen in the private credit landscape. Naturally, law firms and investment banks have strengthened their restructuring practices to serve private credit clients who need more consistent advice. Reuters reported a wave of hires into law firms’ finance teams as private credit work expanded, while major advisory boutiques and banks have also moved to add senior restructuring talent. Reuters+1 gated)
The move to in-house workout teams is not simply a talent trend; it reflects a wider market shift. If firms are investing in this expertise, it is fair to assume that firms will need this expertise for long beyond 2025 – an ominous indicator, especially for those relying on a buoyant market.
When a borrower defaults, the options available and the speed with which they are executed, materially affect long-term value. Funds that can negotiate restructuring solutions, implement operational turnarounds or convert debt into equity will both protect returns for their investors and help differentiate themselves as a financing partner.
In an increasingly saturated and commoditised environment, the presence of an operational workout capability is becoming a selling point in LP diligence. Some managers are now explicitly flagging restructuring experience in their fundraising materials – an attempt to signal that they can manage downside as well as originate and price risk. Bloomberg+1 (gated)
As I look ahead to 2026, I believe restructuring and workout expertise will become a defining feature of private credit funds. The sector has matured, and with that maturity comes a new reality: stress events are no longer outliers, they’re part of the operating landscape. Even if interest rates ease, the structural challenges in leveraged portfolios won’t disappear overnight. Refinancing risk, covenant pressure, and sector-specific headwinds will continue to test managers.
I expect the next phase to be about formalisation and sophistication. Dedicated restructuring teams won’t just be reactive; they’ll sit at the heart of investment decision-making, and funds that integrate workout expertise into their underwriting process will have a competitive edge because they’re planning for downside from day one.
I would also expect to see greater differentiation among managers – LPs are already asking tougher questions about how firms handle stress. In the next fundraising cycle, the ability to demonstrate a proven track record in workouts will be as important as origination credentials, and those who invest early in talent and process will stand out.
Private credit is here to stay, but the winners will be those who treat restructuring not as a contingency, but as a core competency.
If you’re a private credit manager thinking about how to future-proof your portfolio, now is the time to act to gain a competitive advantage. I’d welcome a conversation on how funds can embed this expertise effectively and what best-in-class teams look like in practice; send me an email or give me a call.
