Definition
Assets Under Management (AUM) refers to the total market value of investments being managed by a financial institution, such as an investment firm, mutual fund, venture capital firm, or hedge fund. It’s an indicator of the size and success of the institution, as well as the fiduciary duty the firm has to its clients. AUM can include assets like stocks, bonds, cash, and mutual funds, among others.
Key Takeaways
- Assets Under Management (AUM) refers to the total market value of the investments that a person or entity manages on behalf of clients. It’s used primarily by investment advisors and mutual funds to measure the size of their business.
- AUM can increase or decrease based on the investment gains or losses and the amount of capital clients invest with or withdraw from the management entity. It’s an essential measure to determine a fund’s size, success, and prestige.
- AUM is crucial because it’s often the basis for fees charged by investment entities. The higher the AUM, the higher the income generated from management fees. Therefore, investment firms aim to increase their AUM to maximize their revenue.
Importance
Assets Under Management (AUM) is a crucial financial term that signifies the total market value of the investments that a financial institution or individual money manager oversees on behalf of clients.
It is an important indicator as it represents the size and success of a firm in the investment management industry.
High AUM suggests that the firm is trusted and preferred by a significant number of investors or has high-value investments.
Furthermore, firms typically charge management fees based on a percentage of AUM, which means more assets under management lead to higher revenue for the company.
Consequently, AUM can directly impact the profitability of an investment firm.
Explanation
Assets Under Management (AUM) is a crucial term in the finance sector dedicated to showcasing the total market value of all financial assets which an institution, such as a bank, mutual fund, or investment company, is managing on behalf of its clients. These funds are typically managed by financial professionals whose responsibility extends over managing, buying, and selling these assets based on clients’ investment objectives and guidelines.
The computation of AUM affects the fees clients are charged by these institutions; larger AUM often means lower expense ratios due to economies of scale. The primary purpose of assets under management is to provide an indicatory metric representing the size and success of a financial institution.
It allows prospective investors to compare different investment firms based on their AUM, assisting in the decision-making process. AUM, being a clear and easily measurable metric, gives investors an idea of how many other investors trust the institution with their money.
Moreover, AUM is frequently used by regulatory bodies for supervisory processes and ensuring adherence to the compliance framework, with entities managing larger AUM subject to more stringent regulations.
Examples of Assets Under Management
BlackRock Investment Firm: As of 2021, BlackRock, the world’s largest investment management company, has over $9 trillion assets under management. These assets include everything from individual retirement accounts, to large institutional investment funds, to governmental funds.
Vanguard Group: Another example is Vanguard Group, an American registered investment advisor known for its low-cost mutual funds and ETFs. As of 2021, they have about $
2 trillion in global assets under management.
Fidelity Investments: Fidelity Investments, a multinational financial services corporation, also has a significant amount of assets under management. As of 2021, it manages assets worth about $
2 trillion. This includes assets held in retirement accounts, mutual funds, and other investment accounts.
FAQs about Assets Under Management
What are Assets Under Management (AUM)?
Assets Under Management (AUM) is the total market value of the investments that a person or entity handles on behalf of investors. It is typically calculated by adding the value of cash, securities, and other assets and then subtracting the liabilities.
Why are Assets Under Management (AUM) important?
AUM is an important metric in the financial industry because it indicates the size and success of an investment firm. A higher AUM means that the firm is managing a greater amount of money, which can signal trust and success to potential investors.
How are Assets Under Management (AUM) calculated?
The calculation for AUM is straightforward. The market value of all the investments managed by the entity is added up, and any liabilities are subtracted. The only tricky part can be properly assessing the current market value of investments.
What can increase Assets Under Management (AUM)?
There are several ways to increase AUM, including positive performance of the investments, net inflows of new client money, and acquisition of other funds or firms. It is essentially a measure of growth and success for investment firms.
What does a decrease in Assets Under Management (AUM) mean?
A decrease in AUM can result from a variety of factors such as poor investment performance, investor withdrawals, or simply the normal fluctuations of market values. If AUM is decreasing significantly, it can suggest problems within the investment firm.
Related Entrepreneurship Terms
- Investment Portfolio
- Financial Advisor
- Mutual Funds
- Index Funds
- Portfolio Management
