Contained within this asset class are equity interests in investment funds, limited partnerships and unrated tranches of collateralized debt obligations for which the Company does not have sufficient rights or ownership interests to follow the equity method of accounting. The Company accounts for such equity securities at estimated fair value with changes in fair value recorded through AOCI as it has no significant influence over these entities. Also included within other investments are structured transactions that are carried at amortized cost.

Year ended December 31,
(U.S. dollars in thousands)		2012		2011
Alternative Investment Funds:
	Arbitrage	$	278,680	$	132,847
	Directional		254,616		228,544
	Event Driven		96,451		-
	Multi-Style		65,125		93,664
Total alternative funds		$	694,872	$	455,055
Private investment funds			89,469		87,491
Overseas deposits			96,117		91,425
Structured transactions			312,122		323,705
Other			27,299		27,586
Total other investments		$	1,219,879	$	985,262

At December 31, 2012, the alternative fund portfolio, accounted for as other investments, employed four strategies invested in 17 underlying funds, respectively. The Company is able to redeem the hedge funds on the same terms that the underlying funds can be redeemed. In general, the funds in which the Company is invested require at least 30 days notice of redemption, and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund.

Certain funds have a lock-up period and/or may also have the ability to impose a redemption gate. A lock-up period refers to the initial amount of time an investor is contractually required to remain invested before having the ability to redeem. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the redemption date.

The fair value of the Company's holdings in funds that may be subject to lockups and/or that have gate provisions in their governing documents at December 31, 2012 and 2011 was $335.2 million and $240.0 million, respectively. The Company did not have any holdings in funds where a gate was imposed at December 31, 2012 or 2011.

Certain funds may be allowed to invest a portion of their assets in illiquid securities, such as private equity or convertible debt. In such cases, a common mechanism used is a side-pocket, whereby the illiquid security is assigned to a separate memorandum capital account or other designated account. Typically, the investor loses its redemption rights in the designated account. Only when the illiquid securities in the side-pocket are sold, or otherwise deemed liquid by the fund, may investors redeem that portion of their interest that has been “side-pocketed”. At December 31, 2012 and 2011, the fair value of our funds held in side-pockets was $25.0 million and $28.4 million, respectively. The underlying assets within these positions are generally expected to be liquidated over a period of approximately two to four years.

An increase in market volatility and an increase in the volatility of hedge funds in general, as well as a decrease in market liquidity, could lead to a higher risk of a large decline in the value of the hedge funds in any given time period.

The following represents an analysis of the net realized gains and the net unrealized gains on the Company's alternative investment funds and private equity funds:


Year ended December 31,	Net Unrealized Gains (Losses)				Net Realized Gains (Losses)
(U.S. dollars in thousands)		2012		2011		2012		2011		2010
Alternative investment funds	$	130,702	$	96,873	$	(2,153)	$	10,120	$	526
Private investment funds		38,518		33,725		257		3,585		3,049
Total	$	169,220	$	130,598	$	(1,896)	$	13,705	$	3,575

Overseas deposits include investments in private funds related to Lloyd's syndicates in which the underlying instruments are primarily government and government-related/supported and corporate fixed income securities. The funds themselves do not trade on an exchange and therefore are not included within available for sale securities. Also included in overseas deposits are restricted cash and cash equivalent balances held by Lloyd's syndicates for solvency purposes. Given the restricted nature of these cash balances, they are not included within the cash and cash equivalents category in the balance sheet

The Company historically participated in structured transactions in project finance related areas under which the Company provided a cash loan supporting project finance transactions. These transactions are accounted for in accordance with guidance governing accounting by certain entities (including entities with trade receivables) that lend to or finance the activities of others under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management.

The following table shows a summary of the structured project finance loans for the years ended December 31, 2012 and 2011:

Project Finance Loans
(U.S. dollars in thousands)	2012		2011
Aggregate loan value	$	36,802	$	49,650
Aggregate loan net carrying value	$	31,219	$	40,483

Opening allowance for loan losses	$	(9,167)	$	(9,167)
Amounts charged off during the period		3,584		-
Closing allowance for loan losses	$	(5,583)	$	(9,167)

Number of individual loan participations		4		6
Number of individual loan participations relating to the allowance for loan losses		1		2
Weighted average contractual term to maturity		1.0 years		2.1 years
Weighted average credit rating		BB		BB-
Range of individual credit ratings		BB+ to BB-		BB+ to CCC

Surveillance procedures are conducted over each structured project finance loan on an ongoing basis with current expectations of future collections of contractual interest and principal used to determine whether any allowance for loan losses may be required at each period end. If it is determined that a future credit loss on a specific contract is reasonably possible and an amount can be estimated, an allowance is recorded. The contractual receivable is only charged off when the final outcome is known and the Company has exhausted all commercial efforts to try and collect any outstanding balances.

On June 9, 2009, XL Specialty Insurance Company (“XL Specialty”), a wholly-owned subsidiary of the Company, entered into an agreement with National Indemnity Company, an insurance company subsidiary of Berkshire Hathaway Inc. (“National Indemnity”). Under the agreement, and a related reinsurance agreement, National Indemnity would issue endorsements (“Endorsements”) to certain directors and officers liability insurance policies known as “Side A” coverage policies underwritten by XL Specialty (the “Facility”) during an eighteen month period that ended in December 31, 2011.

In connection with the Facility, XL Insurance (Bermuda) Ltd (“XLIB”) purchased a payment obligation (the “Obligation”) in an aggregate principal amount of $150 million from National Indemnity. The outstanding Obligation was recorded in Other Investments at an estimated fair value of $128.1 million, pays a coupon of 3.5%, and is being accreted to $150 million over the 11.5 year term of the payment obligation. The difference between the estimated fair value of the Obligation and the cost of that Obligation at the time of the transaction was approximately $21.9 million and was recorded in Other Assets. This difference, together with fees of $2.5 million, was amortized in relation to the earning of the underlying policies written. During the years ended December 31, 2012, 2011 and 2010, amortization of nil, $9.4 million and $9.5 million, respectively, was recorded.

On July 17, 2009, XLIB, a wholly-owned subsidiary of the Company, purchased notes with an aggregate face amount of $155 million. The carrying value of these notes at December 31, 2012 and 2011 was $147.8 million and $147.5 million, respectively. The issuer of the notes is a structured credit vehicle that holds underlying assets including corporate debt and preferred equity securities, including some securities issued by European financial institutions, as well as project finance debt securities. The notes, which are callable under certain criteria, have a final maturity of July 22, 2039.

These structured transactions are not considered to be fair value measurements under U.S. GAAP and, accordingly, they have been excluded from the fair value measurement disclosures. See Note 3, “Fair Value Measurements,” for details surrounding the estimated fair value of these investments.

The Company regularly reviews the performance of these other investments. The Company recorded losses of $2.7 million, $0.7 million and $7.8 million in the years ended December 31, 2012, 2011 and 2010, respectively, due to other than temporary declines in values of these other investments.

See Note 17 (b), “Commitments and Contingencies – Other Investments,” for further information regarding commitments related to other investments.