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Allied World makes $500mn private equity investment

Allied World has bought a substantial minority stake in private equity firm and hedge fund MatlinPatterson and pledged to invest $500mn through its funds, according to reports.

The deal was revealed by the New York Times following briefings from sources involved with the transaction.

MatlinPatterson is a New York-based private equity group that invests in distressed assets, and was spun out of Credit Suisse First Boston in 2002.

Company founder Mark Patterson was a non-executive director at Allied World until earlier this year.

Although the size of the equity injection is unknown, the deal would represent upwards of 5 percent of the group's total investment portfolio, which stood at $8.9bn at the half-year.

Allied World already has an unusually high-risk investment strategy considering insurers normally tend to seek safety in high quality fixed income bonds.

Following the deal Allied World could have upwards of $1bn invested in private equity and hedge funds - more than 10 percent of its overall portfolio.

In addition, 25.5 percent ($2.3bn) of Allied World's investment portfolio is in mortgage-backed securities.

By contrast, only 59 percent of the specialty insurer's portfolio is allocated to government, corporate and municipal debt and corporate bonds.

Last year Allied World failed in its efforts to push through a transformative merger with Transatlantic Re, ultimately losing out to Alleghany after the intervention of deal-wrecker Validus.

Allied World's investment in MattlinPatterson is something of a mirror image of the recently in vogue phenomenon for hedge funds to invest in reinsurance vehicles.

Hedge funds that have entered the reinsurance space include Greenlight Capital, Third Point, Paulson & Co and SAC Global Investors.

Allied World could not be reached for comment.

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