What are Assets Under Management (AUM)?

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Definition:

Assets under management (AUM) is a term used to describe the total value of assets or capital that a bank, fund manager, or mutual fund manages on behalf of investors.

🤔 Understanding assets under management

The total market value of investments that an individual or fund manages for others is called assets under management (AUM). AUM is also commonly known as funds under management, and mutual funds often use it as a marketing tool to attract new investors. Fund managers also use AUM to calculate a client fee known as an AUM charge. This is a fee that investors or clients pay to a fund manager in exchange for managing investments. It is calculated as a percentage of the total assets under management.

Example

Let’s say you’ve got cash to invest and are considering placing that money in a mutual fund. While shopping around, fund managers are probably going to want to talk to you about their total assets under management (AUM). This tells you how many assets or how much capital that fund manager handles. If you choose to invest $100,000 of your money in a particular mutual fund, your fund manager might charge you an AUM fee of 1%. That would mean your AUM fee would be $1,000.

Takeaway

Assets under management (AUM) is like the number of people who report to a manager at work…

If you’re a manager at a company, the performance of your team may be determined by any number of things, including the general business environment in which you’re operating. But the number of people under your management will reflect how many people’s work you’re directing. Similarly, a fund manager’s performance may be influenced heavily by the broader stock market; assets under management will reflect how many people have placed their money with the fund manager, and how much of it they placed.

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What are Assets Under Management (AUM)?

The total market value of investments being managed for others by an individual or fund is called assets under management (AUM). It can apply to venture capital firms, brokerages, mutual funds, investment advisors, and other financial institutions that invest money or assets for somebody else.

Sometimes referred to as funds under management, AUM is often used as a marketing tool by mutual fund managers to attract new clients. That’s because clients often see higher investment inflows and a large AUM to be a sign that a fund manager knows what they’re doing.

But AUM isn’t just about marketing. It’s also used to show whether fund managers will need to follow certain laws or regulations. For example, financial advisors in the United States with an AUM of $100M or more are generally required to register with the U.S. Securities and Exchange Commission (SEC).

In addition to regulators, fund managers and financial advisors also use AUM to show the financial position of prospective clients. Financial institutions will sometimes ask for the individual AUM of a client. This is considered a best practice before offering services to ensure the individual has enough assets to withstand a certain degree of losses on a given investment.

Companies and fund managers tend to define and calculate AUM in different ways. Some organizations might combine all cash and bank deposits for every one of their clients. Others might calculate AUM on a client-by-client basis. Alternatively, they might only include the capital a manager uses to make client transactions on a discretionary basis.

For example, Fidelity Investments is a Boston-based financial services company that operates all over the globe. It’s also one of the biggest asset managers in the world. As of March 2020, Fidelity reported an AUM of $2.9T (which combines asset values including equity, bonds, and money market assets).

Funds use AUM fees to calculate the client fees that fund managers, brokerages, or professional financial advisors charge in exchange for managing that person’s assets,and it’s generally a nominal percentage of the total AUM.

Finally, it’s important to note that AUM tends to fluctuate on a daily basis for many funds. That’s because assets can depreciate, securities can go up or down in value, and inflows and outflows from clients change.

What is an AUM fee?

An assets under management (AUM) fee is a nominal charge that fund managers or financial advisors charge clients. This fee covers professional services in relation to managing a given investment. It’s normally charged as a small percentage relative to the fund or portfolio manager’s AUM.

For example, let’s say you invest $50,000 in a mutual fund. The fund manager might ask you to pay an annual AUM fee of 2%. That means the manager would charge you $1,000 per year. It’s important to note that funds typically calculate AUM fees relative to your own personal investment rather than the fund manager’s total AUM.

What is the difference between AUM and NAV?

Both assets under management (AUM) and net asset value (NAV) look at the value of your assets. But there’s one key difference between AUM and NAV.

AUM only looks at the total value of the assets a fund manages on behalf of clients. Mutual funds and exchange-traded funds (ETFs) often use NAV. It looks at the total value of assets. Then, it subtracts that number by the total value of any liabilities. If a company or investors want to figure out the NAV per share of company stock, they would then divide the NAV by the number of outstanding shares.

How do you calculate AUM?

Firms or different fund houses often calculate assets under management (AUM) using slightly different formulas or processes.

AUM represents the total value of assets under management by a particular fund manager, advisor, or some other entity. But the reason AUM calculations tend to vary is because companies often define it differently. For example, a fund might calculate AUM by adding up the total value of all cash investments and bank deposits it controls for each of its clients. A fund could calculate this collectively for all clients or separately on a client-by-client basis.

AUM is also sometimes calculated to include only the capital that an investor has given a manager to make client transactions on a discretionary basis. Discretionary investment management is when a fund or portfolio manager is given full discretion to pick where client money is invested.

It’s also worth noting that AUM calculations will often change on an almost daily basis. A fund’s AUM might change for a range of reasons, including inflows and outflows of funds. For example, if a mutual fund manager sells shares in another fund, that will inevitably impact the mutual fund’s total AUM.

The number of dividends paid into an institutional portfolio, capital appreciation, and the value of securities can also impact AUM calculations. If a fund has invested in common stock shares of a company, the market value of those shares might go down. As a result, the AUM of the mutual fund would then decline along with it.

Why does AUM matter?

Mutual funds use AUM as a marketing tool to attract new investors. A larger AUM generally tells prospective investors the fund generates high investment inflows.

Investors also often use AUM to figure out a company’s size in relation to the competition. This can be one of many indicators that the business may or may not be a good place to invest cash.

In addition to fund marketing and informing investments, AUM also matters because it’s used to calculate AUM fees. AUM fees are client charges paid in exchange for management services. AUM fees are normally set as a nominal percentage of the total client AUM.

What are the largest asset managers by AUM?

The largest asset manager by assets under management (AUM) in 2019 was BlackRock, a New York-based investment manager. As of July 2019, BlackRock reported $6.84T worth of assets under management. Those assets included everything from equity and fixed income to cash management, alternative investment, and real estate.

After BlackRock, the second largest asset manager by AUM in 2019 was the Vanguard Group. The Vanguard Group is an investment advisory based in Pennsylvania. In March 2019, the group reported an AUM of $5.6T. That number has since increased, rising to $6.2T in January 2020.

The third largest asset manager by AUM in 2019 was UBS Group AG. UBS is a Swiss investment bank and financial services company based in Zurich and Basel. As of April 2019, UBS claimed an AUM of $3.256T.

What is the AUM of an ETF?

An exchange traded fund (ETF) combines different types of securities and tracks a particular index. An ETF is similar to a mutual fund, but it’s traded on the exchange rather than buying shares directly from the fund. That means the value of an ETF can go up or down throughout the day as shares in the fund are bought or sold. It could also change based on the creation of new shares or redemption of existing shares.

You can calculate the assets under management (AUM) of an ETF by taking the market price per share of the fund. Then, multiply that price by the number of shares outstanding.

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