Assets Under Management (AUM): The total market value of the investments that a person or entity manages on behalf of clients is referred to as assets under management (AUM). Assets under management definitions and formulas differ from company to company.
Some financial institutions include bank deposits, mutual funds, and cash in their calculations of AUM. Others restrict it to discretionary funds, where the investor delegated authority to the company to trade on their behalf.
Overall, AUM is only one factor considered when assessing a company or investment. It is also frequently considered alongside management performance and management experience. On the other hand, investors often regard higher investment inflows and higher AUM comparisons as a positive indicators of quality and management experience.
Key Takeaways
● The total market value of the investments that a person or entity manages on behalf of investors is referred to as assets under management (AUM)
● AUM changes daily, reflecting the flow of money into and out of a fund as well as the price performance of the assets
● Funds with a higher AUM are more easily traded
● Management fees and expenses for a fund are frequently calculated as a percentage of AUM.
Understanding Assets Under Management
Financial institutions’ amount of money for their clients is referred to as assets under management. A fund or family of funds manages the aggregate market value of all investments. A venture capital firm, a brokerage firm, or an individual registered as an investment advisor or portfolio manager is referred to as AUM.
AUM, which is used to indicate the size or amount, can be classified in various ways. It can refer to the total number of assets managed for all clients or the total number of assets managed for a single client. AUM is the capital available to the manager to make transactions for one or all clients, usually discretionary.
For example, if an investor invests $50,000 in a mutual fund, those funds are added to the total AUM pool. Without obtaining any additional special permissions, the fund manager can buy and sell shares following the fund’s investment objective using all of the invested funds.
Why AUM Matters
Firm management will monitor AUM about the investment strategy and investor product flows to determine the company’s strength. Investment firms also use assets under control as a marketing tool to attract new investors. AUM can provide investors with a sense of the size of a company’s operations compared to its competitors.
AUM may also be taken into account when calculating fees.
Many investment products charge management fees calculated as a percentage of the assets under management. In addition, many financial advisors and personal money managers charge a percentage of their clients’ total assets under management. This percentage typically decreases as the AUM grows; in this way, these financial professionals can attract high-wealth investors. Learn more regarding Merchant Exports under GST.
