What on Earth is AUM?
Management of Assets (AUM): Explanation, Methodology, and Illustration
Assets Under Management (AUM) is the total value of all investments that a fund manager or investment company manages on behalf of their clients. This includes your hard-earned cash and everyone else's when it's all pooled together.
What's the Big Deal with AUM?
AUM shows the size of an investment portfolio and helps potential investors evaluate funds. A significant AUM suggests stability, liquidity, and a fund that's popular among other investors.
Key Points to Keep in Mind:
- AUM fluctuates with market conditions and investor activity.
- A hefty AUM can indicate an experienced and trusted fund manager.
- Fees and expenses are often calculated as a percentage of your AUM.
Digging Deeper:
AUM is essential to a range of financial players – from investment funds to venture capital firms to individual portfolio managers. When calculating AUM, financial institutions might include various assets like bank deposits, mutual funds, cash, and more, depending on their policies.
Some firms only count funds that are under their discretionary management to determine AUM. This number can become important for an investor who wants to qualify for certain investments, like a hedge fund. An investor's AUM can also impact the type of services they receive from a financial advisor or brokerage company.
AUM doesn't always stay the same. It can increase due to asset performance, capital appreciation, reinvested dividends, and new clients. Losses in the market value, fund closures, and decreased investor inflows can lead to a dip in AUM too.
To calculate AUM, start by aggregating the total market value of all assets that the investment manager oversees. This might include stocks, bonds, mutual funds, ETFs, cash equivalents, and other types of securities. Next, identify and value each asset within client portfolios, taking into account factors like current market prices, fair values, and currency conversions if necessary. Lastly, add up the total values of all assets to get the AUM.
Fun Facts:
- The U.S. Securities and Exchange Commission (SEC) regulates most firms with AUM between $25 million and $110 million, depending on the company’s size and location[1].
- State securities regulators oversee advisers managing up to $100 million in AUM, while the SEC regulates those with AUM above the $100 million threshold[1].
- Management fees and expenses are frequently tied to AUM, with fees often calculated as a percentage of your investment[4].
- AUM can sometimes be a powerful marketing tool. Investment companies use AUM to attract new clients and demonstrate their credibility in the market[1].
How Does it All Make Sense?
Investors often view a larger AUM as a positive sign, believing it to be a reflection of management quality[3]. Remember, though, that higher AUM doesn't automatically mean higher fees[4]. It's essential to understand fee structures to make informed decisions.
- U.S. Securities and Exchange Commission
- Investopedia: Assets Under Management | Definition, Legal Requirements & More
- Financial Advisor Magazine
- Investopedia: Management Fees
- Assets Under Management (AUM) is the total value of all investments managed by a fund manager or investment company on behalf of their clients, including tokens, bank deposits, mutual funds, cash, and more in the realm of finance and investing.
- A significant AUM suggests a fund that's popular among investors, offering stability and liquidity to potential investors, making it easier for them to evaluate funds.
- When calculating AUM, factors like current market prices, fair values, and currency conversions are taken into account, providing a comprehensive measure of a business's investment portfolio.
- AUM can be influenced by various factors such as asset performance, capital appreciation, reinvested dividends, and new clients, demonstrating the growth of a venture capital or Defi business.
- Management fees and expenses are often tied to AUM, with fees calculated as a percentage of your investment, which can impact the type of services you receive from a financial advisor or brokerage company.
- The U.S. Securities and Exchange Commission (SEC) regulates most firms with AUM between $25 million and $110 million, while state securities regulators oversee advisers managing up to $100 million in AUM.
- AUM can be a valuable marketing tool for investment companies, helping to attract new clients and demonstrate credibility in the market by showcasing their size and extensive experience in managing investments.
