The chief executive of a hedge fund disputed the assertion in aNew York Times article that Allied World Assurance Co.made a substantial investment in his firm.

Mark Patterson, chairman of the investment firm MatlinPatterson,says the Zug, Switzerland-based insurer Allied World made a minorinvestment into MPAN, a hedge fund investment vehicle.

“The kind reporter at The New York Times took a littlebit of liberty and called it a 'substantial minority interest,'”says Patterson.

A story in The New York Times says people briefed onthe deal say Allied World has “acquired a substantial minority interest” inthe hedge fund. The Times goes on to say that Allied Worldalso agreed to invest $500 million into MatlinPatterson'sfunds.

Patterson declined to say how much the investment was thatAllied World made.

The Times notes that the deal is just another exampleof insurers and other financial institutions seeking additionalways to deploy capital and make additional revenue in the face ofcontinue disappointing investment returns.

Allied World recently announced that it expects to report$40 million in crop reinsurance losses for the third quarter ofthis year. It also expects to report another $5 million to $10million losses and loss expenses from Hurricane Isaac, which struckthe Gulf Coast in August.

Allied World was in a bidding war with the insurer Validus for Transatlantic Holdingsfor months. The two would eventually lose out to AlleghanyCorp.

In a statement released late today, Allied World says it isexpanding its asset management business with the creation “of astategic partnership between MatlinPatterson and Allied WorldFinancial Services Co., Inc., a subsidiary of Allied World.”

Allied World says it will become a minority owner inMatlinPatterson and will “provide growth capital for the continuedexpansion of their asset management platform.” MatlinPatterson willmanage $500 million of Allied World's portfolio, the statementcontinued, “over time, in existing and future strategies.”

“This partnership solidifies a longstanding association betweenAllied World and MatlinPatterson co-founder Mark Patterson, whopreviously served on our board of directors,” says Scott Carmilani,chairman and chief executive officer of Allied World.

Updated with comments from Allied World.