Harbourvest's Ian Lane on market uncertainty

As sponsors battle high-interest rates and a continually cloudy financing outlook, HarbourVest managing director Ian Lane says his firm is modeling investments for uncertainty.

Why it matters: The M&A spigot in health care is backed up — and it's unclear when the faucet might turn back on.

Axios spoke with Lane as part of the Axios Expert Voices series. This interview was edited for length and clarity.

How is the firm approaching maintaining discipline in a continually challenging financing environment?

• "When we speak to some of the intermediaries, the investment banks, we hear that the pipelines are large and growing. And so there's a lot of activity in the pipeline. The big question out there today is what is the bid-ask spread and is that going to converge?
• We should expect or underwrite that there will be multiple contractions in between when we invest in a company today and when we exit a company. It could be modest, it could be one or two turns a multiple it could be significant. Four or five, six turns a multiple depending on the industry.
• We're looking for more cushion in the covenants that we're seeing. We're looking for lower leverage overall, we are assuming that there will be a higher cost of capital for a longer period of time. It'll be in the cost of debt.
• We are modeling in a typical recession. ... We're not modeling in a GFC. We're not modeling a mild recession."

There's a backlog of processes right now. When do you think we might see auctions start launching?

• "I always hear next quarter. So frequently, it feels like everything's around the corner. I think the reason why the backlog was high at the beginning of the year — and it's still high today, presumably higher — is because you haven't had that catalyst.
• You haven't had either the confidence that growth is going to be good and a recession is in our rearview mirror and people will feel comfortable underwriting higher growth and higher performance going forward — or because the market is clearly in a difficult position and sellers need to effectively acquiesce and take lower prices for their assets."

Though long-touted as the major health care investment conference, JPM has seen event competition from HLTH and ViVE. Does HarbourVest plan to attend this year?

• "So there's two main reasons why we go there. It's effectively kind of a reset. Every year you get to look at the market and what's happening, what the hot topics are, where people are thinking and where the ethos of the industry is, at that point in time.
• But more importantly for us is we have about 35 general partners that we keep in regular contact with in regards to health care investing, and they're all there. And so we get to consolidate our meetings and meet up with most of the general partners that we work with in the healthcare sector over the course of a few days."

🏀 1 fun thing: Lane's weekends are primarily spent keeping up athletically with his three teenaged sons — a basketball player, a golfer and a ski racer.