AIG to Expand Pension, Hedge Fund Ties After $5.56 Billion Deal

  • Insurer’s Validus acquisition includes AlphaCat business
  • CEO Duperreault says he expects AlphaCat to grow over time

American International Group Inc. will expand its relationships with alternative-asset managers after it completes a $5.56 billion deal to buy Validus Holdings Ltd., Chief Executive Officer Brian Duperreault said.

Validus’s AlphaCat unit, which oversees $3.4 billion, works with pensions, hedge funds and other investors to gain exposure to reinsurance assets, helping them bet on markets not closely correlated to financial securities such as stocks and bonds. Reinsurers provide backstop coverage for primary insurers.

“Validus has been very, very good at matching risk with capital,” Duperreault said Monday in a telephone interview. “We’re a bigger buyer of reinsurance today than we were before my arrival.”

See also: AIG’s Validus deal signals CEO reversing course on retrenchment

Duperreault has increased his appetite for reinsurance, which is one of the businesses he’s entering with AIG’s all-cash offer Monday to buy Bermuda-based Validus. Hedge funds and pensions have also shown interest in that industry as low interest rates globally have pushed down returns on bonds. AIG recently struck a deal with Nephila Capital, a KKR & Co.-backed hedge fund, for a reinsurance deal, trade publication Trading Risk reported this month.

AIG expects AlphaCat, which is run by reinsurance veteran Lixin Zeng and ex-Goldman Sachs Group Inc. banker Paschal Brooks, to expand over time, the CEO said on a conference call Monday. Validus, which has 30 data scientists, catastrophe modelers and software developers, worked with billionaire John Paulson’s firm to help create a Bermuda venture in 2012, which four years later was wound down.

Two years ago, AIG’s investment division began to shrink its hedge fund holdings amid disappointing results. Still, the relationship between hedge funds and insurance companies has grown as money managers found more opportunities to provide capital to protect against natural disasters.

A “hedge fund may have one capital criteria, and another asset provider might have a different one,” Duperreault said in the interview. “It’s the underwriter who’s evaluating it and marrying it up in the appropriate place.”

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