Insurance company buys stake in MatlinPatterson

Allied World Assurance's investment in the Mark Patterson-led firm follows Florida SBA's purchase of an interest in Providence Equity Partners last month.

Switzerland-headquartered insurance business Allied World Assurance Company will purchase a minority stake in distressed investment specialist MatlinPatterson.

As part of the transaction, MatlinPatterson will manage $500 million of Allied World’s portfolio in existing and future credit strategies. The partnership will provide MatlinPatterson with growth capital “for the continued expansion of their asset management platform”, according to a statement.

“This agreement will allow for a collaborative approach to investing in liquid credit strategies and is designed to maximise flexibility while maintaining a multi-year capital commitment,” chief executive officer of Allied World Scott Carmilani said in the statement.

The deal marks the second transaction involving an institutional investor buying a piece of a general partner in the last few weeks. In September, the Florida State Board of Administration purchased a minority interest in Providence Equity Partners, a source with knowledge of the situation previously told Private Equity International.

New York-based MatlinPatterson is currently investing capital out of its latest vehicle, MatlinPatterson Global Opportunities III, which closed in 2007 on $5 billion. While some of the firm’s investors had expressed concerns about the future of the GP due to weak performance from its second and third funds, the Montana Board of Investments reported over the summer that MatlinPatterson’s third fund had improved from being at risk for “permanent impairment”, to generating positive returns.

Fund III was generating a 1.75 percent IRR and a 1.06 multiple as of 31 March, according to Montana Board of Investment documents. Earlier that month, MatlinPatterson sold healthcare business XLHealth Corporation to United Health for between $1.5 billion and $2 billion, generating a 5.5x return multiple. The transaction recently won PEI’s 2012 Operational Excellence Award for a healthcare investment in the Americas.

The firm was founded by distressed investment specialists David Matlin and Mark Patterson, who spun out of what was then Credit Suisse First Boston in 2001 and raised $2.2 billion for their debut fund.