AUM — Assets Under Management

20 October 2024

What is Assets Under Management

Assets Under Management Definition — The meaning of Assets Under Management (AUM) is a financial metric used primarily in the investment and financial services industry to quantify the total market value of assets that a financial institution, such as an investment management company or a hedge fund, manages on behalf of its clients.

These assets can include various types of investments, such as stocks, bonds, mutual funds, real estate, and other financial instruments.

Work

AUM Works — AUM is an important measure for both investors and financial institutions because it provides insights into the scale and performance of an investment manager’s business.

Here’s how it works:

Client Investments:

A financial institution attracts clients who entrust their capital to the institution for investment purposes. These clients can be individuals, institutions, pension funds, or other entities.

Investment Management:

The financial institution’s team of investment professionals manages the assets on behalf of their clients. They make investment decisions, allocate capital, and aim to generate returns based on the clients’ investment objectives and risk tolerance.

Calculating AUM:

AUM is calculated by adding up the total market value of all the assets (investments) that the institution is actively managing on behalf of its clients. This includes both the principal amount invested and any returns or losses generated from those investments.AUM = Principal Investments + Investment Returns/Losses

Reporting:

Financial institutions typically report their AUM regularly to their clients, regulators, and the public. This figure can fluctuate over time as clients deposit or withdraw funds, as well as due to changes in the value of the underlying investments.

Purpose

AUM Purposes — AUM is a key performance indicator for investment managers and serves several purposes:

Scale Measurement:

It reflects the size and growth of an investment management company. Larger AUM figures may indicate a more established or successful firm.

Fee Revenue:

Investment managers often charge fees based on a percentage of AUM. Higher AUM can lead to higher fee revenue, assuming the fees are structured accordingly.

Risk Assessment:

AUM can be used to assess the concentration of assets in certain investments or asset classes, which can help evaluate risk exposure.

Comparison:

Investors use AUM to compare investment managers when selecting where to invest their money.

It’s important to note that AUM can fluctuate due to market movements, client activity, and investment performance. Additionally, different investment managers may have different fee structures and investment strategies, so AUM alone may not fully represent an investment manager’s expertise or success.

Pronunciation

AUM Pronunciation — The acronym AUM is typically pronounced as individual letters: “A-U-M.” You say each letter separately when referring to “Assets Under Management.” Here’s how you would pronounce it:

A – “Ay” (like the letter “A” in the English alphabet) U – “You” (like the word “you”) M – “Em” (like the letter “M” in the English alphabet)

So, when saying “AUM,” you would say it like “Ay-You-Em” with each letter enunciated.

Origin

AUM Origins — The term “Assets Under Management” (AUM) is a financial industry jargon that has been in use for many years, but its exact origin is not attributed to a specific person or date. It emerged naturally as a way to describe the total value of assets that a financial institution or investment manager is responsible for managing on behalf of clients.

As the financial industry evolved and investment management became more complex, the need for a standardized term to quantify the scale of these operations became apparent. AUM serves this purpose by providing a straightforward and easily understandable metric.

The concept of managing assets on behalf of clients, of course, dates back to the early days of finance, but the specific terminology “Assets Under Management” likely gained prominence in the 20th century as financial markets and investment management practices became more formalized and regulated.

Today, AUM is a widely recognized and used metric in the financial industry, providing a quick snapshot of the size and scale of investment management businesses.

Type

AUM Types — Assets Under Management (AUM) can encompass a wide range of asset types, depending on the type of financial institution or investment manager and the preferences of their clients.

Here are some common types of assets that can be included in AUM:

• Equities: This includes investments in individual stocks and shares of publicly traded companies. Equity investments are a common component of AUM for many investment managers and mutual funds.
• Fixed Income: Fixed income assets comprise bonds, treasury securities, corporate bonds, municipal bonds, and other debt instruments. These are often included in AUM, especially in portfolios with a focus on income generation and capital preservation.
• Cash and Cash Equivalents: Liquid assets like cash, money market instruments, and short-term certificates of deposit may be part of AUM, especially in portfolios with a liquidity or safety focus.
• Real Estate: Real estate investments can include properties, real estate investment trusts (REITs), and real estate-related assets. Real estate can be a significant component of AUM for real estate investment firms.
• Alternative Investments: This category encompasses a wide range of non-traditional assets such as private equity, hedge funds, venture capital, private real estate, and commodities. These assets are often included in AUM for alternative investment managers.
• Mutual Funds and Exchange-Traded Funds (ETFs): Investment managers that offer mutual funds or ETFs will include the assets within these funds as part of their AUM.
• Private Client Portfolios: AUM can also consist of customized portfolios created for individual high-net-worth clients or institutional investors. These portfolios may include a mix of the asset types mentioned above, tailored to meet the specific investment goals of the client.
• Pension Funds and Retirement Accounts: For pension fund managers, AUM includes the total value of the pension fund’s assets, which may consist of a diversified mix of equities, fixed income, and other investments.
• Endowments and Foundations: Non-profit organizations, universities, and charitable foundations may have substantial AUM consisting of various investments, including equities, bonds, and alternative assets.
• Sovereign Wealth Funds: These government-owned investment funds often manage vast sums of money, including foreign exchange reserves, stocks, bonds, and other investments.
• Family Offices: Family offices oversee the wealth and investments of high-net-worth families. AUM in family offices can encompass a wide range of assets, often tailored to the family’s specific needs and objectives.

The composition of AUM can vary significantly depending on the investment strategy, the type of clients served, and the goals of the financial institution or investment manager. The ability to diversify across different asset classes is a key aspect of portfolio management, allowing investors to spread risk and potentially achieve their financial objectives.

Example

AUM Examples — Here are a few examples of how Assets Under Management (AUM) might be calculated and used in various financial contexts:

Mutual Fund AUM:

• A mutual fund company manages several funds, each with its own portfolio of stocks and bonds.
• The AUM for each mutual fund is calculated by summing up the market values of all the securities held in that fund.
• For example, a large mutual fund company may have total AUM of $50 billion, with individual fund AUM ranging from $1 billion to $10 billion.

Hedge Fund AUM:

• A hedge fund specializes in alternative investments and may have a mix of assets like equities, fixed income, derivatives, and private equity.
• The AUM for a hedge fund is calculated by adding up the market values of all the investments in its portfolio.
• For instance, a hedge fund might have AUM of $2 billion, consisting of various positions across different asset classes.

Wealth Management AUM:

• A wealth management firm caters to high-net-worth individuals and families, providing personalized investment portfolios.
• The AUM for a specific client’s portfolio is the total market value of the assets in that portfolio.
• For example, a wealth management firm may have a total AUM of $5 billion, with each client having their own portfolio ranging from $1 million to $50 million.

Pension Fund AUM:

• A pension fund manages retirement savings for employees.
• The AUM for a pension fund is the total value of all the investments within the fund.
• A public pension fund, for instance, may have AUM of $100 billion, invested in a diversified portfolio of stocks, bonds, and alternative assets.

Private Equity Firm AUM:

• A private equity firm invests in private companies and may also hold positions in publicly traded companies.
• The AUM for a private equity firm includes the market values of its investments.
• For example, a private equity firm might report AUM of $20 billion, representing the value of the companies in its portfolio.

Robo-Advisor AUM:

• A robo-advisory platform offers automated portfolio management to retail investors.
• The AUM for a robo-advisor is the total value of assets invested by its users.
• A robo-advisor might have AUM of $1 billion, with thousands of users’ portfolios.

Endowment Fund AUM:

• An endowment fund is typically managed by educational institutions or non-profit organizations.
• The AUM for an endowment fund includes the market values of all its investments, which may include stocks, bonds, and alternative assets.
• For example, a university’s endowment fund may have AUM of $2.5 billion.

These are just a few examples of how AUM can be applied across different financial institutions and investment strategies. It’s a critical metric used to measure the size and scale of investment management operations and can vary widely depending on the specific circumstances and objectives of each entity.

AUM Meaning in English, Hindi, Tamil, Urdu, Marathi, Kannada:

• AUM Meaning in English: AUM stands for “Assets Under Management.”
• AUM Meaning in Hindi: In Hindi, AUM can be represented as “प्रबंधन के तहत संपत्ति” (Prabandhan ke Tahat Sampatti), which translates to “Assets Under Management.”
• AUM Meaning in Tamil: In Tamil, AUM can be represented as “மேலாண்மையின் சொத்து” (Mēlāṇmaiyiṉ Cottu), which translates to “Assets Under Management.”
• AUM Meaning in Urdu: In Urdu, AUM can be represented as “منظربندی کے تحت اثاثے” (Manzarbandi Ke Tehat Asasa), which translates to “Assets Under Management.”
• AUM Meaning in Marathi: In Marathi, AUM can be represented as “व्यवस्थापनाच्या अधीन निधी” (Vyavasthāpanācyā Adhīna Nidhī), which translates to “Assets Under Management.”
• AUM Meaning in Kannada: In Kannada, AUM can be represented as “ನಿರ್ವಹಣೆ ಕೇಂದ್ರಿತ ಆಸ್ತಿ” (Nirvahane Kendrita Āsti), which translates to “Assets Under Management.”

These translations reflect the concept of “Assets Under Management” in various Indian languages.

Assets Under Management FAQ