Assets Under Management
(AUM)
Description
AUM (Assets Under Management): A Way to See How Strong and Trustworthy Your Money Is
Finance and investment professionals, the media, and research analysts throw around the term Assets Under Management (AUM) regularly. But what’s the real meaning of AUM and why is it so critical in the investment and money management world? If you are an investor, a finance enthusiast eager to learn more, or a common man intrigued by the functioning of investment companies and implications for your money, then understanding about AUM is helpful for you.
How about “Assets Under Management”?
"Assets Under Management" is the total market value of all financial assets that a business or its clients manage as investments, including cash, stocks, bonds, real estate, and other investments.
Here’s the rub: You employ a financial planner to control yours and a handful of other clients’ finances. The AUM of that planner is the aggregate total amount of funds they manage. This number increases or decreases based on new investments, withdrawals, and asset performance.
AUM has often been considered by people as a yardstick for measuring how gigantic, successful, and reputable an investment firm is the greater the AUM, the larger and by implication, the stronger the investment firm, signifying the magnitude of customer confidence in the business. Indicator of Revenue: Many investment firms charge fees proportional to AUM; therefore, a firm generally makes more money (as its AUM is higher).
Assets under management (AUM)
A fund’s efficacy or present investor interest can be indicated by changes in AUM. For example, fast growth in AUM could mean good returns or effectiveness in marketing.
Investor Confidence
Investors are comfortable with companies that have high AUM because they view these companies as stable, resourced, and with a good history.
How do you figure out AUM?
In simple terms, it is possible to determine AUM by simply summing up the existing market value of all assets under management, yet in actual numbers, this can be taxing because it entails.
Market Fluctuations
Asset prices change daily; hence, AUM changes every minute.
Flows into and out of the system
New inflows or outflows to the system with changes in AUM. New assets going in or old assets leaving the portfolio increase or decrease the total value of the assets under management.
Thus, most firms report AUM on a monthly, quarterly, or yearly basis rather than daily.
AUM for Various Investment Firms
It is a yardstick used by investment organizations to indicate their size and potentials:
ETFs and mutual funds – these take lots of investors’ money and spread it over a bunch of investments. The money the fund holds is referred to as AUM, which indicates how hot and how big they are.
Hedge Funds: Typically, they manage small amounts of money but concentrate on sophisticated, high-return strategies. How successful they are in the market can be gleaned from their AUM.
Private Equity Firms: These companies manage investment in private companies, startups, or real estate. AUM represents the amount of investment that the company’s investors have contributed to such entities.
Wealth Management Firms: These firms look after the investment portfolios of high-net-worth individuals. AUM represents the total value of all assets owned by their clients.
What Does AUM Mean to Investors?
On his side, a single investor may thus find it quite handy to know just how much money a company has:
Credibility and Stability
Large AUM firms are typically more stable and regulated, which gives people that feeling of safety.
Resources and Knowledge
They have more analysts, research teams, and technology so that could be more beneficial in making investment decisions.
Fee Structures
AUM figures can further show how fees would be assessed and, thus, the investor may find out how expensive his investment would be.
But a larger AUM is not always synonymous with average performance. Case in point, some small companies outperform bigger ones because they are more flexible in their strategies.
Problems With Using AUM as a Metric
AUM is a fair yardstick but certainly not the only one which investors should have in mind:
Performance Matters More
It makes no sense to have a large AUM if the returns are bad. Always look into the past performance of the fund or company.
Growth vs. Stability
AUM growing fast could render it hard for managers to keep their focus.
Fee Impact
Larger AUM can occasionally mean higher fees, which can slice into returns.
Different ways of reporting
Not all companies report or even calculate AUM in the same fashion, which makes the comparisons hard.
What is the effect of AUM on fees and income?
Most investment managers charge a fee to their clients based on the amount of money they manage generally 1% per annum. Thus, if a company were managing $1 billion and charged it 1%, it would be collecting $10 million in fees per year. If the AUM were to increase to $1.2 billion while the percentage fee rate stayed constant, then the fees would rise to $12 million.
Hence, companies can raise their AUM by performing well marketing or acquisition of other companies.
What AUM Eto Hopes to See in the Future
The Am of has to adapt to the investment sector: Enhanced ETFs and index funds are widely used and fueled by passive investing has amassed huge numbers in these categories.
Robo-Advisors and Technology
Technological advances are disrupting the game in managing more AUM at lower cost levels.
Sustainable Investing
New money is infused through ESG funds. And thus, the cross-asset spread of AUM alters the existing structure.
Globalization
Any transition from locally based investments to those that cross the nation’s borders will increase AUM figures in different regional sectors.
Assets under management (AUM), therefore, is a very good parameter by which one can determine the size, health, and muscle power of an investment firm. It also helps in gauging the trust that investors have placed in the company and approximates how much revenue the company can earn. It’s a good indicator, but you always have to look at that along with other things like performance, fees, and investment philosophy.
A basic understanding of AUM gives you the knowledge to make better inquiries in the financial world and make a better judgment on investment management and investment places. It’s a good indicator, but you always have to look at that along with other things like performance, fees, and investment philosophy.
A basic understanding of AUM gives you the knowledge to make better inquiries in the financial world and make a better judgment on investment management and investment places.