Posted on 16 Oct 2012 by Neilson
Allied World Assurance Co. Holdings AG's new strategic partnership with a hedge fund is unique to the industry, said John Gauthier, president of Allied World Financial Services.
Through Allied World Financial Services Co., an Allied World subsidiary, Allied World said it would invest in MatlinPatterson and become a minority shareholder in the hedge fund. Also, MatlinPatterson will manage $500 million of Allied World's portfolio in existing and future liquid credit strategies.
Liquid credit strategies include mortgage-backed securities, high-yield and investment-grade credit, and distressed securities, Gauthier said in an email.
Gauthier, who oversees Allied World's investment portfolio as chief investment officer of the holding company, said the assets deployed by MatlinPatterson in the partnership will be redeemable, instead of having the multiyear drawdown that most private equity vehicles use.
"The underlying investments aren't that unique, but combining them with one manager, in a broader partnership, where we can see economies of scale on fees, increased expertise, and share in the economic upside of the manager we believe is very unique among our peers," Gauthier said.
MatlinPatterson co-founder Mark Patterson has previously served on Allied World's board.
Hedge funds have a long history of investing in the insurance industry by purchasing catastrophe bonds and investing in sidecars. Reinsurers have also partnered with hedge funds in recent years. Companies including Greenlight Capital Re, Third Point Reinsurance Co. Ltd., PacRe Ltd. and SAC Re have partnered with hedge funds.
Allied World was formed in November 2001 by a group of investors, including American International Group Inc., Chubb Corp., Goldman Sachs Funds, affiliates of the Goldman Sachs Group Inc., and Securitas Allied Holdings Ltd., an affiliate of Swiss Reinsurance Co., according to BestLink, A.M. Best's online financial system.
Allied World's subsidiaries currently have Best's Financial Strength Ratings of A (Excellent).