Assets under management (AUM) is the total [market value] of assets that an [investment company] or financial institution manages on behalf of investors. There are many assets under management definitions. Some financial institutions include [bank deposits], [mutual funds] and cash in their calculations; others limit it [to funds] under discretionary management, where the investor assigns responsibility to the company.
Assets under management are also called funds under management (FUM) and describes how much of investor’s money an investment company controls. Investments are held in a mutual fund or hedge fund and are managed by a venture capital firm, brokerage house, money management firm, portfolio manager, or other financial services company.
AUM includes the funds the manager can use to make transactions. For example, if an investor has $50,000 in an investment portfolio, the fund manager can buy and sell shares using the investment funds without obtaining the investor’s permission.
Assets under management consist of growth and decline due capital appreciation and losses and new money inflow and outflow. Assets under management fluctuate daily depending on the flow of investor money in and out of a particular fund or company and asset performance. It also fluctuates based on changes in the value of a fund or the company’s underlying investments. The AUM indicates the size of the fund and may refer to the total amount of assets managed for all clients or the total assets managed or a specific client.
Methods of calculating AUM varies among companies. AUM may increase when investment performance increases, or when new customers and new assets are acquired. AUM may decrease when investment performance decreases, and because of client turnovers, fund closures, withdrawals or redemptions.
Assets under management give investors more potential investment opportunities. Assets under management include investor capital and capital owned by the investment company executives.
Why AUM Matters
Investors are entitled to disclosure of an asset manager’s performance over time. Many asset management companies compare the size of their AUM with competitors as a measure of success; therefore, accurate disclosure is important for correctly evaluating an asset manager’s performance.
Many investment companies charge management fees that are a fixed percentage of AUM and is critical for investors to understand how companies calculate AUM.
Investment companies use AUM as a marketing tool to attract investors and as an indicator of financial stability. The AUM helps investors get an indication of the size of the company’s operations relative to its competition. However, it is only one aspect in evaluating a company and does not supply full details about the investment potential of the company.
How to Compare AUM
Investors want to know how much money is flowing into a company from other investors. Therefore, an investor should understand how to compare AUM. AUM size is relative. A larger AUM is not always better. It may be helpful to search for below-average to average net assets as a method to compare AUM. The AUM provides insight into a company, but when compared with other measures such as market capitalization, it disclosed true insight into an investment company.
Measurement of Success
Assets under management (AUM) is a measure of the success of an investment company and a measure of the size of its assets compared with its history of AUM in previous periods and with its competitors.
Assets under management are used to determine investment ratings. Fund managers report assets under management when discussing the size of investment portfolios that they manage. Fund managers are often ranked according to assets under management.
Investment companies use assets under management to evaluate the amount of money managed through the company and its mutual funds. Assets under management is an easy way to compare fund managers.