Allied World Assurance has acquired a substantial minority interest in private equity and hedge fund firm, MatlinPatterson.MatlinPatterson and Allied World have long-standing ties. Mr Patterson of MatlinPatterson served on Allied World’s board until earlier this year.The Switzerland-based property and casualty insurer said the move is in an effort to expand the company’s asset management business.Under the terms of the deal, Allied World will invest $500 million in MatlinPatterson’s fund and will provide growth capital for the continued expansion of their asset management platform.“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,” said Scott Carmilani, chairman and CEO of Allied World.“This agreement will allow for a collaborative approach to investing in liquid credit strategies and is designed to maximise flexibility while maintaining a multiyear capital commitment. Both firms believe that this approach is best suited for the current investment environment.“The strategic partnership with Allied World provides us with additional strength and flexibility in the current market,” Mr Patterson said. ”I know the Allied World leadership very well and believe the combination of our teams will result in a strong and lasting partnership.”Allied World’s investment is yet another example of institutional investors like insurers or pension funds buying a stake in a private investment firm and committing a substantial amount of money to the firm’s funds. Deals of this nature can benefit the institutional investor in several ways. They allow insurers searching for returns in difficult markets to tap the investment expertise of a money manager and the investor typically receives discounts on the funds in which they invest.Allied World recently launched its Financial Services Company under the direction of John Gauthier. The company said it’s a part of a broader effort to diversify Allied World’s earnings stream with business relationships that will complement our core property and casualty business, and will add further value to our shareholders.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.”Allied World was one the ‘Class of 2001’ insurance companies to set up in Bermuda. It still has substantial underwriting operations on the Island.