"WE DO NOT DISCLOSE THE NAMES OF OUR CLIENTS"

When Donald J. Herrema, 46, was appointed chief executive of Bessemer Trust in January, he took the helm of a company that has long been synonymous with old money.

But New York-based Bessemer — founded in 1907 as the family office of Henry Phipps, a partner in the Carnegie Steel Co. — is dusting off its image.

In recent years, Mr. Herrema, who became chief operating officer in 1996, has worked to boost Bessemer’s visibility by opening offices from San Francisco to Atlanta. The firm also sets itself apart by offering niche investments — such as leveraged buyout, venture capital and real estate limited partnership funds.

While competitors have lowered their minimums, Bessemer isn’t budging. And he says there are no plans to go public.

Mr. Herrema, who joined Bessemer in 1993, succeeded John R. Whitmore, who retired in January after 24 years as CEO.

Q Who are your clients?

A Today the majority of our clients are first-generation wealth, which is a significant change from the past, when they were multigenerational wealth. We have over 125 current or former CEOs of public or private companies.

Q Any that we can mention by name?

A We do not disclose the names of our clients. That’s one of the things that is extremely important to our clients. There are names you would readily recognize in business and industry, some in politics, a few in sports.

Q Do newly rich, technology-savvy investors gravitate to old-line trust banks?

A Historically, the wealth management business was more oriented toward inherited wealth.

Today, what is also true for Bessemer Trust is that most of our clients — in fact, 85% of our new clients over the last two years — are first-generation wealth.

They now have to establish those types of structures — i.e., family limited partnerships, private foundations — that are consistent with their objectives and their philanthropic interests, with very careful attention to the tax consequences of that planning.

Q Why has Bessemer decided to target the newly wealthy, vs. its traditional client base?

A Beginning in the early 1970s, we began a concentrated effort to attract non-Phipps family members, and have been consistently doing this.

In the last four years, we have tripled the number of clients and more than doubled assets under management to $23 billion currently. So targeting the newly wealthy is a focus we have had for the last 10-plus years.

We also have a very significant percentage of our clients that are multigenerational wealth. I would anticipate we would continue to have a blend of both.

Q Who are these nouveaux riches?

A Individuals who have taken a company public through initial public offerings. Those who have had wealth created through the exercise of stock options. Those families or individuals who have sold a business or through mergers and acquisitions have had accelerations of public stock and/or market value increases in private holdings.

They want a very involved organization, that can focus not only on the maintenance of wealth, but also on enhancing that newly created wealth through investment and tax planning.

Time is a very scarce resource for them. In many cases, they continue to be involved in new businesses or a variety of businesses. Unlike the traditional wealth that might have been inherited and/or won in retirement, the newly wealthy continue to have an active involvement (in business).

Q How has the firm changed to serve those needs?

A We continue to focus on stocks and bonds. Over the last two years we have organized a number of alternative asset funds. We’ve done two buyout funds of funds. We’ve done a venture capital fund of funds, a real estate fund of funds.

We recently organized a technology growth fund of funds. Bessemer is one of the managers. It focuses exclusively on the boom in technology-oriented businesses.

Also, we have enhanced our geographic presence. Five years ago, we were predominantly a Northeast- and (Atlantic Coast) Florida-client-based company. Today, we have offices in Chicago, San Francisco, Los Angeles, Naples, Fla., and our newest office in Atlanta, which opened in the last couple of months.

Q Will Bessemer open additional offices?

A While we have no near-term plans, locations such as Dallas, Houston, Seattle, Denver would be among the top cities we would consider.

Q Trust banks began to refashion themselves as asset-management companies in the 1970s. Has Bessemer undertaken this shift?

A At the turn of the century in 1907, we were the family office for our founding shareholder family. In that role we provided asset management as well as tax and financial planning for the Phipps family. Since the early 1970s, we have been and continue to focus on being an asset-management and investment advisory firm providing trust services.

Q What returns have your clients gotten from leveraged buyout funds of funds?

A In recent years, those funds have produced returns from 30% to 50% per annum.

Q Some advisers to affluent investors have lowered their minimums in recent years. Why hasn’t Bessemer done so?

A Our minimum is $5 million. We have no plans to lower that minimum. We have a very exclusive style of service in that we do not segment our clients. We want to maintain the high client-to-staff ratio — at 3-to-1 it’s probably superior to anyone in the industry. Our average account size has increased from $7.5 million four years ago to in excess of $20 million today.

Q As the competition to serve affluent investors grows much more intense, why should investors pay for Bessemer’s services?

A We do not underwrite securities. So if we recommend a stock to a client, it is only because we believe that stock has capital appreciation potential.

Second, we do not sell bonds out of a fixed inventory. We only recommend bonds when we think they make sense for our clients.

For a fee that is far less than mutual funds or a combination of asset-based fees and typical brokerage commissions, our clients get all the wealth management services for a very competitive rate. Our beginning fees are 1% of assets and they go down based on the size of the overall relationship.

Q Do you have any plans to take the firm public?

A No.

Q What about acquisitions?

A We continue to look at opportunities, more actively than we did in the past. Recently we had discussions with a domestic firm and an international firm, but there is nothing (in the works) at this time.

Q Would Bessemer consider selling itself to a larger company?

A We are owned by trusts that were created for the benefit of the descendants of the Henry Phipps family. It is extremely unlikely that any such transaction would take place in anything close to the foreseeable future.

Q Where do you see the firm in five years?

A I would expect that we may have opened another office or two. There may be potential acquisitions that we have taken advantage of. We will continue to be the wealth management firm of choice for the high-net-worth individual and family. I would expect that we would have growth of 20% per year (in assets under management) as we have been experiencing in the last few years.

Vitae

Donald J. Herrema, 46, president and chief executive, Bessemer Trust

Experience: chief operating officer, Bessemer Trust, 1996-1999; senior vice president, private banking group, Wells Fargo Bank; president, Wells Fargo Securities Inc.

Assets managed: $23.2 billion

Large-cap growth private account composite return ($692 million): year to date, 2.9%; 1-year, 33%; 3-year, 33.1%: 5-year, 27.1%

Standard & Poor’s 500 stock index: year to date, 0.94%; 1-year, 19.74%; 3-year, 26.8%; 5-year, 24.13%

Old Westbury funds Core Equity ($54.8 million): year to date, 2.48%; International ($117.5 million): year to date, -1.07%; 1-year, -7.73%, 3-year, 3.19%, 5-year, 1.56%; Growth Opportunity ($137.4 million): year to date, -5.71%; 1-year, -14.27%

Returns through Feb. 28

Sources: Bessemer Trust, Lipper Inc.