AIG to Buy First Principles, Names New Investment Chief -- 2nd Update

By Leslie Scism and Chelsey Dulaney 

American International Group Inc. said Tuesday that it is buying First Principles Capital Management LLC and tapped the private-investment management firm's top executive as its new investment chief.

First Principles CEO Douglas A. Dachille will succeed William N. Dooley, 62 years old, who is retiring after nearly 40 years with AIG. Mr. Dachille, who is 51, will also become executive vice president.

The move will reunite Mr. Dachille and AIG Chief Executive Peter Hancock, who overlapped for more than a decade when working at the company known as J.P. Morgan Chase & Co., according to a company spokesman.

In 1991, Mr. Dachille started a hybrid derivatives unit within the group that Mr. Hancock was running.

After leaving J.P. Morgan, Mr. Dachille formed a partnership with Mr. Hancock and Roberto Mendoza, another alumnus of the bank, and Nobel Prize winner Robert Merton to buy Gen Re Securities from Berkshire Hathaway Inc. But the parties couldn't agree on terms, and Mr. Dachille left the partnership to join Zurich Capital Markets, where he was president.

In 2003, Mr. Dachille helped found First Principles, which he has led for the past 11 years.

First Principles, a fixed-income investment manager with about $10 billion in assets under management, serves clients, including endowments and pension plans.

The acquisition of First Principles marks a return for AIG into the business of managing money for outside investors, a business it exited in the wake of its near collapse during the financial crisis. An AIG spokesman said the company "has no plans to further develop a third-party business."

Before its 2008 bailout, AIG's then-named AIG Investments managed money on behalf of AIG's own insurance units as well as other large investors, such as pension funds. In 2008, it invested $565 billion of insurance funds for the insurance units, and $110 billion for external clients.

AIG's near collapse resulted partly from an effort by AIG Investments to juice profits, with the insurance units heavily exposed to subprime mortgage bonds. Losses mounted when the real-estate bubble burst.

Those bad investments aren't as well known a contributor to AIG's woes as are the company's massive sales of a type of unregulated bond insurance--known as credit-default swaps--to protect Wall Street firms, banks and other big clients from losses on their mortgage bonds.

AIG's former CEO, the late Robert Benmosche, sold the third-party investment-management business in 2010 as one of many divestitures to help AIG fully repay its bailout package.

The First Principles acquisition is expected to close in the third quarter of the year. First Principles will operate as a wholly owned subsidiary of AIG. Terms of the deal weren't disclosed.

Write to Leslie Scism at [e-mail] and Chelsey Dulaney at [e-mail]

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