MatlinPatterson sells stake to insurer Allied World

Allied World Assurance Co. Holdings A.G. announced Tuesday that it will take a minority stake in hedge fund manager MatlinPatterson and invest $500 million through the New York-based firm.

The move is part of a broader effort to “diversify Allied World’s earnings stream,” according to a statement from the Zug, Switzerland-based insurer and reinsurer.

“This agreement will allow for a collaborative approach to investing in liquid credit strategies and is designed to maximize flexibility while maintaining a multiyear capital commitment,” said Scott Carmilani, chairman and CEO of Allied World, in the statement. “Both firms believe that this approach is best suited for the current investment environment,” he said.

The move marks another link between hedge funds and the reinsurance sector. Hedge funds also have invested in reinsurance sidecars, which are short-term reinsurance vehicles set up in conjunction with existing reinsurers to write more business during profitable market cycles.

In addition, several reinsurers have launched in the past few years with hedge fund backing, including Greenlight Capital Re Ltd., SAC Re Ltd. and Third Point Reinsurance Ltd.

Reinsurers associated with hedge funds generally have adopted a more aggressive investment strategies than the conservative investment strategies normally associated with the reinsurance industry.

Gavin Souter is the editor of Business Insurance, a sister publication of Pensions & Investments.