Loading the player...

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 investors’ money an investment company controls. Investments are held in various investment vehicles including mutual funds, exchange-traded funds (ETFs) and hedge funds. Products are managed by a venture capital company, brokerage company or portfolio manager.

AUM can be segregated in many ways. It is used to indicate the size of a fund and can 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 invested in a mutual fund, those funds become part of the total AUM and the fund manager can buy and sell shares in accordance with the fund's investment objective using all of the invested funds without obtaining any special permissions.

Fluctuating daily, AUM depends on the flow of investor money in and out of a particular fund and asset performance. Increased investor flows, capital appreciation and reinvested dividends will increase the AUM of a fund. Adversely, decreased investor flows and market value losses will decrease the AUM 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.

Calculating AUM

Methods of calculating assets under management varies among companies. Total firm assets under management will increase when investment performance increases or when new customers and new assets are acquired. Factors causing decreases in AUM include decreased market value from investment performance losses, fund closures and client redemptions. Assets under management includes all of the investor capital invested across all of the firm’s products and can include capital owned by the investment company executives.

Why AUM Matters

Monitoring AUM by investment strategy and investor product flows is important for management in determining the overall strengths and weaknesses of a firm. Investment companies also use assets under management as a marketing tool to attract investors. AUM can help investors get an indication of the size of a company's operations relative to its competitors.

AUM as a Factor for Investment

AUM may also be an important consideration for new fund investors and wealth management services comprehensively. Products with higher AUM can typically have higher market trading volumes which positively influence the liquidity of a product.

For example, the SPDR S&P 500 ETF (SPY) is one of the largest equity ETFs in the investable market. As of November 15, it had assets under management of $245.6 billion with average daily trading volume of 63.8 million shares. The high trading volume means liquidity is not a factor for investors when seeking to buy or sell shares of the ETF. In comparison, the First Trust Dow 30 Equal Weight ETF (EDOW), which is also an investment product within the equity universe, has assets under management of $2.1 million and much lower trading volume. Liquidity for this fund could be a consideration for investors since its trading volume is also low at an average of 2,046 shares traded per day.

Within the wealth management industry, some investment managers may have requirements based on AUM, and it may determine if an investor is qualified for a certain type of investment. An investor’s individual AUM can also be a factor in determining the type of services received from a financial advisor or brokerage company. In some cases, individual assets under management may also coincide with an individual's net worth. 

For investors, AUM may also be an important consideration for fees. Investment products can charge management fees that are a fixed percentage of assets under management. Financial advisors also often charge clients by their total assets under management. Therefore, it is important for investors to understand AUM, both from an investment company and personal wealth perspective, and to understand how it is calculated.

Overall, AUM is only one aspect used in evaluating a company or investment. It is usually also considered in conjunction with management performance and management experience. However, while it is only one aspect used by investors in investment decisions, generally investors can consider higher investment inflows and higher AUM comparisons as a positive indicator of quality and management experience.

RELATED TERMS
  1. Funds Management

    Funds management is the management of a financial institution's ...
  2. Investment Management

    Investment management is a generic term that most commonly refers ...
  3. Manager of Managers - MoM

    A manager of managers (MoM) approach is a type of oversight investment ...
  4. Managed Account

    A managed account is customized to the needs of the individual ...
  5. Money Manager

    A money manager is a person or financial firm that manages the ...
  6. Investment Fund

    An investment fund is the pooled capital of investors that enables ...
Related Articles
  1. Managing Wealth

    The Biggest and Best Wealth Management Firms

    Looking for a fee-only wealth management firm? Here's a handy ranking to get you started on your search for a top financial advisor.
  2. Investing

    The 8 Biggest International Asset Managers in 2016 (ALV, LGEN)

    Learn more about eight of the largest investment management companies headquartered in Europe, as ranked by assets under management.
  3. Financial Advisor

    Top 5 Asset Management Firms for Portfolios in 2016 (PIMCO, BLK)

    Learn how finding the right asset management firms may be difficult and discover the top five asset management firms to consider for your portfolio in 2016.
  4. Investing

    The 5 Largest Large-Cap ETFs (SPY, IVV)

    Learn about the five largest exchange-traded funds that invest in large-cap companies. Discover how these highly liquid, diversified funds fit in a portfolio.
  5. Investing

    The 5 Biggest Asset Managers at the End of 2015 (BLK)

    Learn about the worldwide asset managers that prospered in 2015 despite a year of very poor performance in stocks, bonds and commodities.
  6. Tech

    Are AUM Fees a Thing of the Past?

    Although the assets under management fee seemed like a good idea for a long time, current market trends may be making it a thing of the past.
  7. Investing

    How Big Is the Global ETF Market? (BLK, STT)

    Discover why ETFs are growing much faster than mutual funds, and why some experts predict the ETF market will double by 2020.
  8. Personal Finance

    The Best and Worst 529 Plans in 2016: Morningstar

    Which 529 college savings education plans are the best (and the worst) according to Morningstar?
  9. Investing

    5 Popular Energy ETFs in 2016 (XLE, USO)

    Discover how investors are using the most popular energy ETFs of 2016 as contrarian plays and to track oil prices for diversification.
  10. Financial Advisor

    CWGIX: Overview of Capital World Growth & Income Fund

    Learn about the American Funds Capital World Growth and Income Fund, a world stock fund that seeks quality stocks on any of the world's largest exchanges.
RELATED FAQS
  1. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center