Bermuda insurance giant XL Capital Ltd. announced yesterday it has bought into New York-based fixed income investment manager MKP Capital Management.

The deal makes XL a minority equity holder of the company which specialises in mortgage-backed securities.

Last night XL was keeping the terms of the transaction under wraps.

But XL Capital executive vice president and chief investment officer Christopher Greetham explained the tactics behind the move.

"The investment in MKP expands our access to investment expertise and enables us to work with talented professionals to provide enhanced investment alternatives to the clients of XL Capital's operating units.

"This initiative is the second of its kind this year following our investment in Boston-based Highfields Capital Management in March.

"Additionally we have a shareholding in Pareto Partners, the world's largest non-bank currency manager.'' He said XL Capital recognised the "strategic importance'' of building relationships with different sectors of the capital markets.

And the company was aiming to maintain a "continuing focus'' on enhancing risk-adjusted returns.

MKP Capital Management principal Patrick McMahon said XL Capital's growth would increase its use of the money management skills and services that his company provides.

And it would enhance MKP's ability to develop and offer products to clients.

"We have a business philosophy similar to XL Capital's and believe that opportunities will develop from a formal relationship built on such a good strategic fit,'' he said.

"We are very impressed with XL Capital's innovative culture and its commitment to building superior shareholder value.''