Assets Under Management (AUM)
What Are Assets Under Management (AUM)?
Assets under management (AUM) is the total market value of the investments that a person or entity oversees for clients. Assets under management definitions and equations differ by company.
In the calculation of AUM, a few financial institutions incorporate bank deposits, mutual funds, and cash in their calculations. Others limit it to funds under discretionary management, where the investor relegates authority to the company to trade for their benefit.
Overall, AUM is just a single viewpoint utilized in assessing a company or investment. It is likewise typically thought to be related to management performance and management experience. In any case, investors frequently consider higher investment inflows and higher AUM examinations as a positive indicator of quality and management experience.
Figuring out Assets Under Management
Assets under management alludes to how much money a hedge fund or financial institution is overseeing for their clients. AUM is the sum of the market value for every one of the investments managed by a fund or family of funds, a venture capital firm, brokerage company, or an individual registered as an investment advisor or portfolio manager.
Used to show the size or amount, AUM can be segregated in numerous ways. It can allude to the total amount of assets managed for all clients, or it can allude to the total assets managed for a specific client. AUM incorporates the capital the manager can involve to make transactions for one or all clients, generally on a discretionary basis.
For instance, in the event that an investor has $50,000 invested in a mutual fund, those funds become part of the total AUM — the pool of funds. The fund manager can buy and sell shares following the fund's investment objective utilizing each of the invested funds without getting any extra special authorizations.
Inside the wealth management industry, some investment managers might have requirements in view of AUM. All in all, an investor might require a base amount of personal AUM for that investor to be qualified for a certain type of investment, for example, a hedge fund. Wealth managers need to guarantee the client can endure adverse markets without taking too large of a financial hit. An investor's individual AUM can likewise be a factor in deciding the type of services received from a financial advisor or brokerage company. At times, individual assets under management may likewise agree with an individual's net worth.
Working out Assets Under Management
Strategies for computing assets under management fluctuate among companies. Assets under management relies upon the flow of investor money all through a particular fund and subsequently, can change daily. Likewise, asset performance, capital appreciation, and reinvested dividends will all increase the AUM of a fund. Likewise, total firm assets under management can increase when new customers and their assets are acquired.
Factors causing diminishes in AUM remember diminishes for market value from investment performance losses, fund terminations, and a decline in investor flows. Assets under management can be limited to all of the investor capital invested across the firm's all's products, or it can incorporate capital owned by the investment company executives.
In the United States, the Securities and Exchange Commission (SEC) has AUM requirements for funds and investment firms in which they must register with the SEC. The SEC is responsible for directing the financial markets to guarantee that it capabilities in a fair and orderly way. The SEC requirement for registration can go between $25 million to $110 million in AUM, contingent upon several factors, including the size and location of the firm.
Why AUM Matters
Firm management will monitor AUM as it connects with investment strategy and investor product flows in deciding the strength of the company. Investment companies likewise use assets under management as a marketing tool to draw in new investors. AUM can assist investors with getting an indication of the size of a company's operations relative to its rivals.
AUM may likewise be an important consideration for the calculation of fees. Numerous investment products charge management fees that are a fixed percentage of assets under management. Likewise, numerous financial advisors and personal money managers charge clients a percentage of their total assets under management. Normally, this percentage diminishes as the AUM increases; along these lines, these financial experts can draw in high-wealth investors.
Genuine Examples of Assets Under Management
While assessing a specific fund, investors frequently view at its AUM since it capabilities as an indication of the size of the fund. Commonly, investment products with high AUMs have higher market trading volumes making them more liquid, meaning investors can buy and sell the fund easily.
For instance, the SPDR S&P 500 ETF (SPY) is one of the largest equity exchange-traded funds on the market. An ETF is a fund that contains a number of stocks or securities that match or mirror an index, for example, the S&P 500. The SPY has every one of the 500 of the stocks in the S&P 500 index.
As of Mar. 11, 2022, the SPY had assets under management of $380.7 billion with an average daily trading volume of 113 million shares. The high trading volume means liquidity isn't a factor for investors while seeking to buy or sell their shares of the ETF.
The First Trust Dow 30 Equal Weight ETF (EDOW) tracks the 30 stocks in the Dow Jones Industrial Average (DJIA). As of Mar. 11, 2022, the EDOW had assets under management of $130 million and much lower trading volume compared to the SPY, averaging around 53,000 shares each day. Liquidity for this fund could be a consideration for investors, meaning it very well may be challenging to buy and sell shares at certain times of the day or week.
- Assets under management (AUM) is the total market value of the investments that a person or entity handles in the interest of investors.
- Funds with larger AUM will generally be all the more effortlessly traded.
- AUM varies daily, mirroring the flow of money all through a particular fund and the price performance of the assets.
- A fund's management fees and expenses are in many cases calculated as a percentage of AUM.