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Allied World Assurance in hedge fund partnership


The boundary between the reinsurance sector and the hedge fund world have never been totally defined, but as convergence between the capital markets and reinsurance sector continues apace the lines are becoming even more blurred, with hedge funds operating reinsurers and reinsurers operating investment funds. There are also partnerships, some of which are almost symbiotic in nature, and Allied World Assurance is the latest to form one of those with fund manager MatlinPatterson.

The announcement today will see Allied World Assurance Company, a provider of property, casualty and specialty insurance and reinsurance solutions through their subsidiaries including a Lloyd’s syndicate, leverage MatlinPatterson to expand its asset management business and opportunities.

A strategic partnership has been formed between MatlinPatterson and Allied World Financial Services Company, Inc., an Allied World subsidiary. Through this partnership deal, Allied World will become a minority owner of MatlinPatterson and will provide a source of growth capital to help with the continued expansion of their asset management platform.  As well as that, MatlinPatterson will manage $500 million of Allied World’s portfolio, over time, in both existing and future liquid credit strategies.

Scott Carmilani, Chairman and CEO of Allied World, said; “This partnership solidifies a long-standing association between Allied World and MatlinPatterson co-founder Mark Patterson, who previously served on our Board of Directors.  His advice and financial acumen have helped Allied World mature into the company it is today.  This agreement will allow for a collaborative approach to investing in liquid credit strategies and is designed to maximize flexibility while maintaining a multi-year capital commitment.   Both firms believe that this approach is best suited for the current investment environment.”

Allied World Financial Services Company was formed recently and this partnership is part of Allied World’s efforts to diversify its sources of investment income to add value to shareholders. Insurers investment prospects have been poor with declining interest rates and a shrinking market of attractive investment opportunities this year. Investment returns have been cited as one of the key concerns for major re/insurers so this tie up with a hedge fund and investment manager makes a lot of sense for Allied World.

Mr. Gauthier commented;  “The goal of the Financial Services Company is to further the expertise of Allied World, while participating in the returns, as an owner, with trusted investment management and other business leaders.”

Mark Patterson added;  “The strategic partnership with Allied World provides us with additional strength and flexibility in the current market.  I know the Allied World leadership very well and believe the combination of our teams will result in a strong and lasting partnership.”

For Allied World, this partnership will seek to help them achieve a better return on their investments and enables them to easily access outsourced hedge fund investment operations. For MatlinPatterson, this partnership offers a new source of capital directly from re/insurance market premiums without the trouble of running their own re/insurer. Essentially the partnership creates an entity who will put re/insurance premiums to work in a hedge fund investment strategy for both partners profit. It’s the same strategy as the hedge fund backed reinsurers such as Greenlight, Third Point and SAC RE operate, but through a partnership rather than a single operation.

We could see more of these relationships spring up as it makes sense for both sides. The re/insurer gets access to a more aggressive investment strategy than they would typically undertake themselves, in the hope of a better return. The hedge fund gets access to re/insurance sector capital and will make management fees and percentages on the returns they achieve. A good deal for both sides. What do you think?

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