Assets under management are the total market value of the investments held under management by an individual or an institution, typically on behalf of clients. Financial institutions that calculate AUM include mutual funds, RIAs, hedge funds, venture capital firms, and depository institutions. It is used as an indicator to measure performance, although its definition and calculation vary with different institutions.


Types of assets under management

Assets under management generally fall into two categories, which include:

Regulatory AUM

According to the SECs guidelines, regulatory AUM includes all assets and securities a firm manages. This also includes continuously supervised assets and those that a fund manager must gain explicit permission from the client to conduct transactions and trades with.

Personal AUM

This refers to the AUM metric where clients incur a fee based on the amount of assets they provide to an investment firm to manage for them. The funding manager wants clients to invest more assets, so they incentivize this action by offering lower management fees. The more a client invests in the firm, the less theyll have to pay in fees.

What does assets under management mean?

Assets under management, called AUM, is a financial term that represents the sum or total market value of investments that financial institutions hold and manage on behalf of their clientele. Market value is the quoted financial worth of an asset, such as the monetary value of a house. Firms like brokerages, depository institutions and venture capitalists use this financial measurement. Their primary goal is to increase AUM, a common indicator of success. However, sometimes a financial institutions held funds are their own economic assets.

The Securities and Exchange Commission, also called the SEC, sets the guidelines and regulations that financial institutions and their fund managers have to follow. Its important for potential investors to look beyond a firms high AUM when seeking out an investment firm. Factors like the fund managers historical reputation and their compliance with SEC policies are worth examining as part of the assessment process.

Reasons for using assets under management

Professionals use AUM for two reasons: to better gauge a firms integrity and to assess AUMs relationship to the firms funding types. AUM allows for accurate comparisons between a firms performance history and the transparency of its investment manager because it provides information that helps evaluate an institutions disclosure policies.

Its also helpful to understand how AUM works in relation to different funding types, as this can aid in any assessments of investment firms. Here are three funding types and AUMs relation to them:

Small-cap funds

Small-cap funds introduce restrictions to cash influxes after certain intervals. AUM used for this kind of fund allows you to gauge the effects of those restrictions, which occurs because of mutual funds growing beyond a specific set margin. Considerable shareholders with funds that have become very large do not trade easily during market fluctuations. To ease this challenge, small-cap funds rarely engage with significant investments or lump sums.

Debt funds

AUM plays a significant role in debt fund investments because a debt fund with higher capital margins can disperse the expenses and fixed fees over a wider range of investors. Spreading these unavoidable costs across all the investors reduces their individual expense ratios and increases the returns of their funds. Increasing the number of assets that exist under a fund like this also helps the firm to negotiate with debt issuers for better and more reasonable rates. This ultimately helps the AUM and the investors.

Equity funds

AUM matters here to encourage the consistency of returns and fund house compliance with investment mandates. It is very important for an equity fund to surpass set benchmarks during market highs and lows so profit margins meet their quotas. To achieve this, equity funds rely on the expertise of a financial asset advisor or manager to create persistent returns that upscale over time.

Why is assets under management important?

Assets under management is important because investors seeking a potential investment firm assess the validity of the firms financial practices based on their AUM. The higher a firms AUM is, the more likely people are to do business with them.

A firms viability increases significantly if their AUM has grown over time, which indicates they have more customers or theyve grown their financial portfolio. Institutions use this metric to compare themselves to other firms. For example, firms with a high AUM can claim that clients trust their expertise more than they trust that of competitors with lower AUM.

One of the other primary reasons AUM is important is because it determines whether an investment firm has to register with the SEC rather than simply registering with the state in which they operate. If an institution manages $100 million or more in AUM, federal law may require them to register with the SEC and report their AUM annually. An exception to this rule is institutions in New York, who usually must register with the SEC if they manage $25 million or more in AUM.

How to calculate assets under management

Calculating AUM investments accurately depends on the assets an institution holds, as they do not all include the same assets in their calculations. Some firms consider all investment capital in their AUM calculations, while others only include relevant capital by their executive investors. Regardless of the assets that fall under the margins of a particular institutions AUM, different methods help to calculate this metric.

The most basic calculating method involves analyzing the investment profile of a fund. The investment typically rises as it provides returns that are positive and consistent. You can continue to calculate the AUM upswing as new investors place their money with the firm. However, money moving in and out of a fund causes daily fluctuations. Investors removing their money from a firm lowers that firms overall AUM calculation, while adding investing more money with a firm increases it.

You can calculate AUM decreases and increases based on its market value. An AUM can lose momentum and lose value due to issues like poor investment performance, lower funding flow from investors and fund closures. It can increase in value when there is favorable investment performance and new investment funds open.

Calculable assets vary greatly, but some of these assets under management can include:

Example of assets under management

Below is a simple example of AUM in finance:

Mutual Firm is a mutual fund with a very diverse portfolio. They have cash, bonds and stocks. Though market fluctuations are constant, their present assets are $5 million in cash, $2 million in stocks and $10 million in bonds. The sum or total market value of all their investments is $17 million. This means that the firms AUM is $17 million.


What are assets under management?

Assets under management (AUM) is the total market value of the investments that a person or entity handles on behalf of investors. AUM fluctuates daily, reflecting the flow of money in and out of a particular fund and the price performance of the assets.

How do you calculate AUM?

For exchange-traded funds, where shares are bought and sold through public exchanges using ticker symbols similar to individual stocks, AUM can be calculated as the price per share times the number of shares outstanding. This is the same formula used for calculating market capitalization for individual firms.

Is AUM same as NAV?

Net asset value vs assets under management

NAV shows what price shares in a fund can be bought and sold at. AUM by contrast refers to the value of assets managed by an individual or firm, not a fund. Unlike NAV, AUM is in reference to the total value of assets being managed rather than expressed on a per-share basis.

Is asset under management important?

Why is AUM Important? Since the assets under management define the size and success of a company, it is important that investors consider them before making any investment choices. The value of AUM of a company also includes the returns that a mutual fund earns, hence can be easily compared with its peers.

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