The term 'Assets Under Management (AUM)' is included in the Economics edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Check for lowest price here...
Assets under management (AUM) refer to the aggregate market value of all assets which an investment management firm or other financial institution (such as a bank) manages for its investor clients. The exact definition of AUM varies from one company to another. Each of them has their own distinctive proprietary formula for figuring up this all important statistic.
There are financial institutions, management companies, hedge funds, and banks that include the client bank deposits, cash, and mutual funds within their calculations. Still others choose to limit this figure to the funds which are under actual discretionary management using the sole choices of the fund manager. In this case, the investor gives over total investment responsibility and control to the management firm and fund manager in question.
Assets under management describe the amount of investment money which such an investment management firm actually controls. These investments are kept within a hedge fund or mutual fund. They are usually actively managed by a brokerage company, venture capital firm, or portfolio manager.
Assets under management express the amount of cash in the fund. It can also reveal the total amount of assets which they manage for their total client base. Alternatively it can be used to refer to the complete amount of assets the company manages for only one particular client. This would include all of the money which the manager is able to utilize in making transactions. As an example, if investors have placed $50,000 within their investment portfolios, the manager of the fund is allowed to purchase and sell whichever shares he so chooses by applying the funds of the investors without having to obtain their consent in advance.
The actual AUM fluctuates daily on every given market trading day. This depends on the investor money flow from one asset fund to another. The performance of assets also changes the Assets under management figure as well. The change in fund value or company investments will therefore alter the total AUM.
Every regulatory regime makes its own rules regarding how large a company must be to be closely regulated. Within the United States, after a given investment management firm possesses in excess of $30 million under management, they are required by law to register their company with the supreme oversight agency the SEC Securities and Exchange Commission. A given investor’s AUM total will decide on what level of service they will receive from their brokerage firm or financial advisor. A great number of companies maintain minimum AUM amounts for certain kinds of investments. This has much to do with qualification levels of the investor in question. Some forms of investments also involve minimum purchase agreement requirements.
Figuring up the total Assets under management requires one of several calculations. With superior investment performance, the figure will rise in every case. As new customers join a firm or additional assets are obtained, this will also increase the AUM. The figure will drop as performance of the investments diminishes, with clients leaving the firm, redemptions, withdrawals, and fund closures. Because AUM includes all investor capital, it may also be comprised of the executives’ assets with the firm.
The total currency amount of Assets under management matters immensely to a management company because of the management fees which they derive from these figures. It is true that an investment company garners a certain percentage in management fees based upon these assets. They are also able to employ their AUM numbers as a type of marketing tool to bring in still more investors and assets to the fund. Investors get a true feel for the size of the financial management company and its operations compared to the various competitors within the industry when they consider the figure. This still does not reveal full details about the potential of the investment company and its various investment choices and strategies.