Additional Resources

  1. The Economics Of Asset Management1 [stern.nyu.edu]
  2. Asset Management, Financial Stability And Economic Growth ... [brookings.edu]
  3. Asset Management Fees And The Growth Of Finance [umass.edu]
  4. The Economics Of Hedge Funds [www0.gsb.columbia.edu]
  5. How To Pay Your Financial Adviser [news.wharton.upenn.edu]
  6. Measuring Economic Rents In The Mutual Fund ... [gsb.stanford.edu]

Definition

In finance, assets under management, sometimes called funds under management, measures the total market value of all the financial assets which a financial institution such as a mutual fund, venture capital firm, or brokerage house manages on behalf of its clients and themselves.

Assets under Management

By definition, asset under management (AUM) is the aggregated market value of the investments for the mutual funds, portfolio management, the hedge fund, money management firms and other services of any financial company.

AUM includes:

  • Capital under the management firms authority
  • Investor capital

The AUM basically fluctuates according to the:

  • Cash inflow and outflow of the specific fund or the company.
  • Changes in the underlying investments and value of the funds/company.

In technical terms, AUM illustrates the volume of the funds, the aggregate asset amount for the clients, and the total managed assets for the clients. The AUM incorporates the funds that managers can make use of for transactions.

For example, if a client has $10000 as an investment portfolio of a company, then the fund manager has the rights to buy/sell shares using the investor’s capital without prior permission.

The SEC (Securities and Exchange Commission) registers every company in the United States that owns more than $30 million in terms of the AUM. Furthermore, the clients/investors AUM is used to determine the services rendered to the investor from a broker or financial advisor.

How are AUM calculated?

The method of calculating AUM varies. It can accelerate when the investment performance shoots up, or when acquiring new assets or customers. On the other hand, it may decrease with a decrease in the investment performance, increase in client turnovers, withdrawals, retrievals, etc.

AUM: How are they important?

The clients/investors are fairly entitled to transparency in the disclosure of asset manager’s workings, and performance over a period of time. This is because, a large number of an asset management company measure success in terms of the competitors size. Accuracy of information and performance is crucial to evaluate how effective an asset management really is.

There are certain ethical standards established by the name of Global Investment Performance Standards (GIPS). These provide corporations, such as investment firms with specific guidelines and policies on how they should report, and calculate the result to their existing and prospective clients.

Also, many companies of asset management charge a certain fee that is equal to the fixed percentage of the AUM. This is crucial for investors to comprehend the calculation of the AUM by the company.

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