Assets Under Management - AUM

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What is an 'Assets Under Management - AUM'

Assets under management (AUM) is the total market value of assets that an investment company or financial institution manages on behalf of investors. Assets under management definitions and formulas vary by company.

Some financial institutions include bank deposits, mutual funds and cash in their calculations; others limit it to funds under discretionary management, where the investor assigns responsibility to the company.

BREAKING DOWN 'Assets Under Management - AUM'

Assets under management describes how much of investor’s money an investment company controls. Investments are held in a mutual fund or hedge fund and are managed by a venture capital company, brokerage company or portfolio manager.

AUM indicates the size of the fund and may refer to the total amount of assets managed for all clients or the total assets managed for a specific client. It includes the funds the manager can use to make transactions. For example, if an investor has $50,000 in an investment portfolio, the fund manager can buy and sell shares using the investor's funds without obtaining the investor’s permission.

Fluctuating daily, AUM depends on the flow of investor money in and out of a particular fund and asset performance. It also fluctuates based on changes in the company investments or the value of a fund.

In the United States, once a firm has more than $30 million in assets under management, it must register with the Securities and Exchange Commission. An investor’s AUM determines the type of services received from a financial advisor or brokerage company. Many companies have requirements based on AUM, and it may determine if an investor is qualified for a certain type of investment because some investments have minimum purchase requirements.

Calculating AUM

Methods of calculating assets under management varies among companies. It may increase when investment performance increases or when new customers and new assets are acquired. It may decrease when investment performance decreases, and because of client turnovers, fund closures, withdrawals or redemptions. Assets under management includes investor capital and can include capital owned by the investment company executives.

Why AUM Matters

Several investment companies charge management fees that are a fixed percentage of assets under management and it is important for investors to understand how companies calculate AUM. Investment companies use assets under management as a marketing tool to attract investors. It helps investors get an indication of the size of the company's operations relative to its competitors. However, it is only one aspect in evaluating a company and does not offer full details about the investment potential of the company.

How to Compare AUM

Investors want to know how much money from other investors is flowing into a company. Therefore, an investor should understand how to compare AUM. More assets under management is not always better. It may be helpful to search for below-average to average net assets as a method to compare AUM. Assets under management provides insight into a company, but when compared against other factors such as market capitalization, it discloses true insight into an investment company.