Table of Сontents
- AUM Meaning & How It’s Used
- Importance of Assets Under Management
- Calculating AUM
- AUM vs. NAV For Mutual Funds and ETFs
- Assets Under Administration (AUA)
- Bottom Line
The total market value of the investments that a person or organization is in charge of managing, usually on behalf of customers, is referred to as assets under management. Mutual funds, RIAs, hedge funds, venture capital companies, and depository institutions are among the financial entities that compute AUM. Although its definition and computation differ amongst institutions, it is utilized as a performance indicator.
AUM Meaning & How It’s Used
The entire market value of the investments that a person or organization manages is known as assets under management (AUM). AUM, also known as funds under management, is frequently used to demonstrate the expansion of investment firms by contrasting its present level with that of earlier intervals. In order to demonstrate a fund or company’s competitiveness versus peers, its AUM is also compared to that of its rivals. AUM is crucial since it is used to determine how much money an investment company makes in management fees in addition to acting as a performance indicator.
AUM, which reflects a financial institution’s size and serves as a metric for company performance, will be taken into account by investors when selecting a financial adviser or mutual fund. Additionally, whether an institution must comply is determined by the AUM value.
Key Takeaway: Management fees are calculated as a percentage of AUM using AUM. It is occasionally used as a gauge of a fund’s success.
Financial advisers must register with the SEC on a federal level if their AUM exceeds $25 million. The regulatory body stipulates that only the securities portfolios for which the financial advisor continuously and regularly provides management or supervision services should be included in the calculation of AUM.
AUM changes every day for an institution according to the factors listed below:
- the money that the company receives and sends from new clients and redemption.
- the variations in the value of assets under control.
- Reinvestment of dividends from managed assets
What an AUM Increase Means
Financial institutions utilize the amount of their AUM, particularly its long-term expansion, to distinguish themselves from rivals. An AUM that has grown over time may indicate that the company is either acquiring new clients, growing the money for its current clients, or both.
Because it often results in more income and larger management compensation packages, an increased AUM is a sign of success. A growing value is a sign of investor trust in the manager and/or the company since asset managers and financial institutions are rated based on AUM.
Importance of Assets Under Management
The following justifies the significance of AUM:
- On the basis of the AUM, institutions and investment managers may occasionally be graded.
- Based on the minimum amount of AUM that the client deposits, is used to decide if an investor qualifies for various sorts of services and investments (such as a hedge fund).
- It serves as a marketing device to draw in fresh investors.
- The amount of the AUM often affects the remuneration packages for the management team.
AUM is calculated differently for each organization. Deposits, mutual funds, and cash may all be included in some banks, but only money subject to discretionary management may be included in other organizations. Cash management has available to make new investments, as well as the returns a mutual fund has made on its investment, might be included.
The various kinds of business models are one factor that contributes to the possibility of diverse AUM calculations. AUM is calculated differently by mutual funds than by financial advisors. If the company is substantial enough to fall under SEC supervision, the SEC also determines what may be included and what cannot be included in the computation. Smaller businesses subject to state regulation may use different definitions of AUM and what should and should not be included.
AUM vs. NAV For Mutual Funds and ETFs
A mutual fund’s or ETF’s net asset value (NAV) is determined by deducting all liabilities from total assets and dividing the result by the number of shares outstanding.
NAV is calculated by dividing the fund’s total assets by its total liabilities.
Investors can acquire shares of mutual funds and ETFs for a price per share known as NAV, which is stated on a per-share basis.
AUM, which is not represented on a per-share basis, stands for the total market value of assets managed by an individual or a company (not a fund).
Assets Under Administration (AUA)
A financial institution’s total assets for which it offers administrative services are measured by its assets under administration (AUA). The customer maintains ownership and management of the assets in this situation, while the financial institution serves as a third-party administrator. The bank or financial institution receives a fee for administering the assets but has no management authority over them.
Mutual funds and hedge funds most frequently use this approach, storing their holdings in the custody of another financial institution, typically a bank. The administrator’s primary responsibility is to maintain accurate records and confirm the validity of transactions.
Among the administrative services offered are:
- Settlement of transactions and asset management
- Business reporting
- Tax reporting and accounting
The AUM of a business is continually tracked and examined since it is a sign of the firm’s success. Given that it is frequently contrasted with its rivals based on size, it is also a marketing strategy used to attract new investors. AUM is frequently used as the basis for calculating management fees. Additionally, the AUM of funds and portfolio managers is frequently used to rate them.