PSP Investments, one of Canada's largest pension investment managers, has joined with New York private equity firm Lightyear Capital to buy the broker-dealer operations of U.S. insurer AIG.

AIG, a global insurance giant, has been under pressure from activist investor Carl Icahn to break itself into three separate companies.

On Tuesday, AIG announced it would start an initial public offering for its mortgage-insurance division United Guaranty Corp. and slash $1.6 billion expenses in other units.

Terms of the sale of AIG Advisor Group, a U.S.-based broker-dealer with more than 5,200 independent advisers and more than 800 full-time employees, were not disclosed.

PSP Investments, which invests pension funds on behalf of the  Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force, has $112 billion under management.

Lightyear Capital, with $2.5 billion under management, primarily invests in financial services companies.

AIG shares rose in response to the news, which included a promise to return $25 billion in capital to shareholders over the next year. Shares were up 1.6 per cent to $56.18 US in afternoon trading.

The spinoff of 19.9 per cent of mortgage firm United Guaranty Corp. is a first step toward a full separation.

The company will also create nine business units within its commercial and consumer segments as part of its streamlining.

"With these actions, AIG has taken another major step in simplifying our organization to be a leaner, more profitable insurer, while continuing to return capital to shareholders and improve shareholder returns," president and CEO Peter Hancock said in a written statement. Hancock said that the business units being created can either grow within the company, be spun off or sold.