As the cost of keeping an in-house investment team keeps climbing and global markets grow more complex and volatile, family offices have taken a shine to external chief investment officers. Unlike multifamily offices, which pool the resources of several families to add scale and maximize investment acumen, external CIOs only manage money, leaving tax, legal and administrative duties to the client’s staff. In response to demand from wealthy families, a diverse contingent of competitors has stepped forward.

“We are seeing service models converging,” says Robert Casey, director of research at the Family Wealth Alliance, a Wheaton, Illinois–based research group focused on family offices. Institutional investment consultants, multifamily offices, funds of hedge funds, manager research firms and asset managers are entering the external CIO arena, Casey notes: “They each bring their own bag of tricks.” Last year his organization surveyed 53 U.S.-based outsourced CIOs advising more than $650 billion in combined assets; it estimates that taxable assets managed by such outfits grew 15 percent in 2012.

With $139 billion under advisement, Cambridge Associates is one of several firms more commonly associated with the institutional marketplace that have emerged as leaders in the external CIO space for family offices. “Today private investors comprise roughly 30 percent of our assets managed,” says R. Bruce Myers, co-head of CA Capital Management, the Boston-based company’s discretionary management unit. “It’s also one of the fastest-growing parts of our business.” According to Myers, unprecedented U.S. wealth creation in recent decades has opened a huge opportunity in the family office market, which remains fragmented and has varied needs. “We have learned that we need to be flexible,” he says. “Some families require more control, so we work with the individual family’s wealth creator to make investment decisions rather than managing on a purely discretionary basis.”

In 2009, Cambridge added a trust company to its business so it could act as trustee for estate planning. Such adaptation by firms moving into the external CIO business is typical, the Family Wealth Alliance’s Casey explains. “Increasingly, we see them offering new services — for instance, consultants that now offer financial planning or an asset manager that now performs manager due diligence,” he says. “There is a blurring of the lines.”

Some outsourced CIOs have been plying their trade for decades. Hirtle Callaghan launched in 1988 to act as an external CIO for wealthy families. While working as a broker at Goldman Sachs Group, co-founder and CEO Jonathan Hirtle noticed that one of his clients, the CIO of a large family office, was consistently outperforming the portfolios that Hirtle managed. He realized that the CIO would always have an advantage for two reasons: the ability to choose top specialist managers from around the world and a strong system for dividing capital among those managers. “He was starting with better value-added from bottom-up securities selection and augmenting it with a powerful capital allocation discipline,” Hirtle says. “That is the power of the CIO model.”