The oil industry is tough enough without having to deal with Hitler and Stalin. But this is what the Schlumberger family, a significant provider of services to oil companies from the 1920s onwards, had to face in the middle of the 20th century.
“There was a lot of family tradition of taking risks and going to places where it was complicated to make money,” says Bertrand Coste, a 65-year-old French financier who has been managing a large amount of his extended family’s assets for the past 30 years. He recalls tales from his parents and grandparents of how the family switched its focus from the US to Azerbaijan and Chechnya — both under Soviet control in the 1920s — to take advantage of “gigantic” oilfields.
“We were a high-tech, scientific business — the Microsoft of the oil industry — peopled by senior engineers and mathematicians,” Coste says. Stalin’s Great Purge of 1936 put a stop to these ambitions, as the family company refocused on other “exotic locations”, including Romania and Venezuela.
But the Romanian project had Hitler to reckon with. In 1940, the family, which had been supporting drilling close to the city of Ploiești, Romania, was forced to flee. “They had to leave fast as the Germans were advancing,” he explains. “Before heading back to France, they managed to sabotage the railway cars transporting the oil.”
Coste is making his own exit now, packing up the contents of his South Kensington flat, where he has lived for more than two decades, as he prepares to move to Luxembourg, in part driven by Brexit (he plans to split his time between there, France and Switzerland). The UK’s departure from the EU’s single market in 2020 meant he could no longer effectively serve clients in continental Europe. His business, Clerville Investment Management, has opened a Paris office to acquire an investment “passport” for this purpose, which led to him scaling back staff numbers in London.
Clerville indirectly came about when, at one of their regular gatherings in 1994, family leaders approached the young Coste, who had already worked for Groupe Paribas France and UBS Phillips & Drew, to help manage their investment portfolio.
“My family asked me to do something with all the money they had earned from running a huge international business in oil services,” he says. “They owned a lot of stocks and had to do something with them. They were particularly concentrated in one liquid single stock, in a portfolio completely screwed up by private bankers.”
This led him to set up the QES investment boutique to manage the founding family’s assets. Then, in 2007, during what Coste calls the “big boom” in family offices, the operation was expanded and renamed Clerville.
“A lot of people made money selling their companies,” he says. “They had achieved success in industry and wanted it all over again by building a family office.” Many of these new entities planned to attract money from other families to build up a multi-family office operation, but few could create the necessary scale needed to hire expensive staff from banks and asset managers.
Clerville was an exception. Coste’s 13 staff now manage €1.2bn, the largest chunk of which is for the Schlumberger family, 15 per cent for another major clan, and the balance from smaller families and individual clients.
Coste tried a variety of investment strategies, including long only, private equity and hedge funds, before settling on structured credit, encompassing asset-backed lending. “A sovereign wealth fund might have a mandate of $500mn to invest,” he says. “But a family like ours would have just $5mn or $10mn for a deal. This might not be big enough for the institutions, but we can roll it into a structured product.”
While not a glamorous investment area, it is one where Coste enjoys a record. “I am scared of nothing, I don’t need a real asset to be confident, as they offer only low returns for a long period,” he says, warming to his theme. “It is easier for me to make money from CLOs,” he adds, describing his love of highly technical debt instruments such as collateralised loan obligations.
Coste does not hide his disdain for self-styled experts. “All our employees are market specialists who structured derivatives at the likes of Goldman Sachs or Barclays Capital. They are used to digging into balance sheets,” he says. “They are not the smooth-talking sales and marketing people you normally see at private and investment banks and some family offices.”
But finding successors from the next generation of his family to help manage investments is no easy task, he admits, over smoked salmon and scrambled eggs at the 5 Hertford Street members’ club in Mayfair. “Younger people are interested in helping out, but few of them know about finance, they are more interested in IT,” he says.
Moreover, few can combine theoretical knowledge with the practical experience necessary to manage investments. “The French education system offers a mathematical education, which works well for options and convertible bond trading,” Coste says. “But the British ‘old boys’ approach to the market — about how good your connections are and which school you went to — is also vital for corporate finance deals.”
Currently, families from the UK and elsewhere in Europe are busy moving staff and operations to Luxembourg — a country he refers to as “Monaco without the crowds” — which is building a reputation for legal and investment expertise in managing and selling funds across the EU, especially those focused on alternative assets. Rather than keeping their money in a traditional Swiss private bank, these families think it makes more financial sense to administer their investments through a regulated European collective investment scheme known as a SICAV, requiring specialised administration, dealing and reporting.
“Luxembourg is the best place for that,” Coste says confidently. “But they don’t yet understand the opportunity they have there. They need to work harder on this.”
In the spirit of his family, Coste also enjoys more speculative projects. Although he was excited by the collapse of the Berlin Wall in 1989, he preferred to watch and wait, feeling he lacked the financial experience to benefit from the upheavals of central Europe. By the time privatisations were under way in Ukraine, almost 10 years later, he was ready to become involved.
“As a family office, we have seen much growth in emerging markets, in China, Russia and some countries in Africa,” he says. “But it’s extremely difficult for a passive investor to find their way in, due to difficulties with corruption and banking.” So he decided to go direct, buying a garment factory in Kyiv’s historic cobbled street of Andriyivsky Uzviz, which winds down from the city’s golden-domed cathedrals towards the Dnipro river.
As a “fashion factory boss”, Coste quickly transferred his team of 100 seamstresses from sewing school uniforms to a significant contract with German fashion brand Hugo Boss, for which they made 90,000 coats per year at the peak. But the business stopped in 2007 when the Ukrainian currency collapsed and it became more profitable for garments to be manufactured in China and surrounding countries. The prime city centre land was eventually sold to SCM, the holding company for colourful Ukrainian oligarch Rinat Akhmetov.
Not every transaction went so smoothly, with lawyers and influential “local people” called in to mediate in property disputes with other tycoons. “We realised it was better to strike a deal, to share some of the assets. It is often better to become good friends with some of these guys. You cannot fight the locals too much as an investor.”
He recalls his time in Kyiv during the 2014 revolution, with “the spirit of the crowd showing the people were ready to fight” — which became even more apparent after Moscow’s full-scale invasion of February 2022. He expects family offices to invest in Ukraine again “once the situation stabilises”.
Coste turns philosophical as he says farewell to his London stamping grounds. Despite the “worrying influence” of Donald Trump on US and world affairs and the “headache” of transferring reporting and custody from manual to high-tech systems, he faces the future with equanimity: “I have seen the very best of London in the Tony Blair [former prime minister] years and it was fantastic, but it is now time to move on.”
Yuri Bender is editor of Professional Wealth Management
