Assets Under Management (AUM) represent the total market value of all financial assets managed by an investment management firm or financial institution on behalf of its investor clients. The precise definition of AUM can vary between companies, as each organization tends to employ its own unique formula to calculate this crucial metric. Some financial entities, including management companies, hedge funds, and banks, incorporate client bank deposits, cash holdings, and mutual fund investments into their AUM calculations. Others restrict their AUM figure to only those funds that are under full discretionary management, where the fund manager has complete control over investment decisions. In such cases, investors relinquish all investment responsibility and control to the management firm and its designated fund manager.
AUM quantifies the investment money that a management firm actually oversees, which is typically held in hedge funds or mutual funds and actively managed by brokerage companies, venture capital firms, or portfolio managers. AUM figure can serve multiple purposes: it may represent the total amount of cash within a specific fund, indicate the cumulative value of assets managed for the firm’s entire client base, or refer to the total assets managed for a single client. In all cases, AUM encompasses the full amount of money that the manager is authorized to use in executing financial transactions.
This measure reflects the total amount of cash and assets managed for all clients or for a specific client, encompassing all funds the manager can use for transactions. For example, if investors allocate $50,000 to their portfolios, the fund manager has the authority to buy and sell any shares they deem appropriate using the investors’ funds, without the need to obtain prior consent from the investors for each transaction.
The AUM figure is not static; it fluctuates on a daily basis due to market performance and investor fund flows. As the value of funds or company investments changes, so too does the total AUM figure.
Regulatory bodies set specific rules for company size and oversight. In the United States, for instance, once an investment management firm’s AUM exceeds $30 million, they are legally required to register their company with the Securities and Exchange Commission (SEC), the country’s primary financial regulatory agency.
For individual investors, their personal AUM total often determines the level of service they receive from their brokerage firm or financial advisor. Many companies set minimum AUM thresholds for access to certain types of investments, which is often related to the investor’s qualification level. Additionally, some investment vehicles come with minimum purchase agreement requirements.
The calculation of total Assets under management can be performed using several different methods. In general, AUM will increase with superior investment performance or as new customers join the firm and additional assets are acquired. Conversely, the figure will decrease if investment performance declines, clients leave the firm, or there are redemptions, withdrawals, or fund closures. Because AUM includes all investor capital, it may also encompass the assets of the firm’s executives.
The total monetary value of Assets under management is of vital importance to management companies due to the management fees they derive from these figures. Investment companies typically earn a percentage of their AUM as management fees.
Furthermore, firms often leverage their AUM numbers as a marketing tool to attract additional investors and assets to their funds. For investors, the AUM figure provides insight into the size and scale of a financial management company’s operations relative to its industry competitors. However, AUM alone does not provide a complete picture of an investment company’s potential, nor does it fully reveal the details of its various investment choices and strategies.
