Assets under Management (AUM) represent the market value of the investments managed by an individual or entity on behalf of their clients. The AUM figure is a key metric used to gauge a company’s performance and the experience of its management.
When calculating AUM, financial institutions may include various assets such as bank deposits, mutual funds, and cash. However, some institutions may restrict it to discretionary managed funds from individual investors.
Key Takeaways
- Total Market Value: AUM represents the total market value of investments managed on behalf of investors.
- Dynamic Figures: Fluctuations in AUM reflect the inflow and outflow of funds and the market performance of the assets.
- Fee Determinants: Management fees and expenses are generally calculated as a percentage of the AUM.
Deep Dive into Assets Under Management (AUM)
AUM is the combined market value of all investments managed by a fund manager, brokerage, venture capital firm, or individual registered as an investment advisor. For instance, if an investor has $50,000 in a mutual fund, that amount is counted towards the fund’s total AUM. Fund managers use these assets to buy and sell shares without requiring special permissions from investors.
Essential Elements
- Capital Availability: Managers can use the cumulative AUM to make transactions for any or all clients.
- Qualification Thresholds: Some investments require investor-specific AUM minimums as qualifying criteria, like hedge funds.
- Client Service Levels: An individual’s AUM can influence the type of services they receive from financial advisors or brokerage firms.
A growing AUM is often seen as an indicator of a company’s quality and management acumen, drawing in more investor interest.
Calculating Assets Under Management
The calculation of AUM varies and depends on the inflow and outflow of investor money, as well as market performance, capital appreciation, and reinvested dividends which increase AUM. AUM can decrease due to market losses, fund closures, and reduced investor inflows.
The U.S. Securities and Exchange Commission (SEC) mandates registration for firms with an AUM ranging from $25 million to $110 million, dependent on several factors like firm size and geography. The SEC oversees these firms to ensure the financial markets function optimally.
AUM and Fees
The AUM amount is crucial in fee calculations. Many investment products charge management fees as a percentage of AUM. Advisors and money managers also base their fees on personal AUM, with fees generally decreasing as AUM increases, attracting high-net-worth individuals.
AUM Case Studies
SPY
The SPDR S&P 500 ETF (SPY) is an exchange-traded fund aiming to mirror the S&P 500 index. As of June 14, 2023, SPY managed assets worth $412.25 billion.
EDOW
The First Trust Dow 30 Equal Weight ETF (EDOW) tracks the Dow Jones Industrial Average (DJIA). As of June 14, 2023, EDOW managed $189.58 million in assets.
Importance to Investment Companies
Investment companies utilize AUM figures as a promotional tool to attract new investors. It helps potential investors compare the operational scale of investment firms relative to competitors.
Insights for Investors
Investors scrutinize a fund’s AUM to understand its size. Typically, funds with high AUM have higher market trading volumes, making them more liquid for buying or selling the fund easily.
Benefits of Large AUM
Funds with large AUM can handle redemption pressures better. If substantial investors exit, the fund remains relatively stable.
The Bottom Line
Assets Under Management (AUM) serve as a critical metric to assess the value of investments overseen by a person or firm. It provides insights into the experience and performance of fund management teams. The SEC ensures regulations are established for firms with significant AUM to protect investors.
Related Terms: mutual funds, exchange-traded funds, net worth, management fees, market value, liquidity.
References
- U.S. Securities and Exchange Commission. “Investor Bulletin: Transition of Mid-Sized Investment Advisers From Federal to State Registration”, Pages 1-2.
- YCharts. “SDPR S&P 500 ETF Trust (SPY)-SPY Total Assets Under Management”.
- YCharts. “EDOW Total Assets Under Management”.