Investment Banker Offers Strategies to Grow Equity.

For an investment banker, the definition of a successful company is one whose stock value is growing, said John Rafter, managing director of the banking division for Goldman Sachs International.

Aegon, which boasted a 38.6% annual return during the 1990s, excels at growing its stock value, Rafter said. But that is a relatively modest gain compared with the technology sector's performance. For example, Microsoft produced 46.1% increases in annual earnings during that time, and others have seen returns on equity of 95% annually, Rafter said.

Rafter pointed to five basic strategies employed by companies that produce high returns:

* High-risk, high-reward strategy: This is most common in investment banking, where companies look to score big gains by taking big risks.

* Smart acquisition strategy: This philosophy was used by Citigroup Inc., which was formed in a merger that brought Travelers Group and Citicorp Inc. together. Other examples of this philosophy are Axa Group, which bought Equitable, and Aegon, which recently closed on its acquisition of Transamerica.

* Predictability strategy: Investors like companies that maintain consistent growth without surprises. American International Group Inc. "is the posterchild of predictability," Rafter said.

* Category killer: This is a difficult path for insurers to follow, because it means puffing all the company's efforts into one area and hoping the company becomes the top player in that field.

* Niche players: This philosophy applies to companies that carve out a specialty area--smaller than a category--to dominate. For example, Markel Insurance Group has been successful in carving out niches-- excess and surplus lines, professional and products liability, specialty personal and commercial lines, and brokered excess and surplus lines.