Allied World Assurance Co. is the top backer of MatlinPatterson Global Advisers’ bets on Puerto Rico’s rebound, according to a person familiar with the arrangement.
The insurer provided more than half of the $150 million that MatlinPatterson invested in the junk-rated commonwealth and has committed to provide more funds, said the person, who asked not to be identified because the deal was private. The investment firm, which manages money through hedge funds and private equity, is raising cash for a standalone strategy to invest in Puerto Rico.
Allied World is among insurers that have been diversifying into riskier holdings to improve returns at a time when fixed- income yields are near record lows. Allied World purchased an interest in Blue Vista Capital Management last year for real estate investing, and in Mark Attanasio’s Crescent Capital Group in 2013 for junk-rated debt.
“Allied World is a meaningful source of capital supporting the MatlinPatterson Puerto Rican municipal bond strategy,” Chief Investment Officer John Gauthier said in an e-mail. “We initially supported the strategy based on the in-depth diligence and experience of Mike Lipsky and the team, the unique nature of the opportunity and the expected lack of correlation with the rest of our portfolio.”
Through its investment with MatlinPatterson, the Zug, Switzerland-based insurer is betting on government securities and entities such as Puerto Rico Electric Power Authority, the person said. The insurer became a minority owner of MatlinPatterson in 2012 and agreed to invest $500 million in the New York-based firm’s strategies.
Lipsky is a MatlinPatterson partner who specializes in distressed debt investments. He joins firms including Knighthead Capital Management and D.E. Shaw & Co. who believe they can profit from helping the island restructure debt and boost its economy.
Puerto Rico’s Senate gave preliminary approval early Thursday to a $9.8 billion budget that reduces spending. The lawmakers need to reach a compromise on that spending plan with the island’s House of Representatives before the commonwealth can sell as much as $1 billion of tax- and revenue-anticipation notes.
MatlinPatterson oversees about $7.5 billion. Doug Hesney, a spokesman for MatlinPatterson at Dukas Public Relations, declined to comment on the investment.
Allied World had more than $8 billion invested assets as of March 31, mostly allocated toward corporate bonds, U.S. government securities and mortgage-backed debt, company filings show.
–With assistance from Michelle Kaske in New York.
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