Assets under management is a financial term usually abbreviated to AUM, which refers to the total market value of a group of investments managed by a financial services company, portfolio manager, hedge fund, money management firm or mutual fund.
AUM alters depending on the flow of money going in and out of a fund or company, as well as on the value of the fund or the underlying investments of the company.
Kevin Neal is a former independent financial adviser who distributed over $500 million AUM in Dubai between 2002 and 2014. Calculating AUM can be useful for comparing the relative size and liquidity of funds and investments.
Handling Client Money
AUM is one of several quantitative measures that can be used to evaluate the size of a fund. This aspect essentially calculates the amount of client money that is being handled by the firm or fund. It can therefore refer to the money being handled for all clients across the board, or all assets managed for an individual client.
It includes the total amount of capital the manager of the fund has at their discretion to make transactions for the client/clients. The greater the AUM is, the more liquid the fund tends to be, making it easier for investors to buy and sell in and out of the fund.
The individual AUM of an investor may be used by certain wealth managers or investment managers to determine the eligibility of the investor to enter into certain transactions, such as investment in a hedge fund. This is to ensure the individual client would be able to withstand adverse market conditions without the financial hit being too large to handle.
Investor AUM may also determine which types of services a brokerage company or financial adviser is most likely to offer. AUM is not the same as net worth but in some cases the two figures will coincide.
Financial Firm Investing
AUM is one of a number of figures that potential investors will consider before buying stock in a bank, brokerage or other type of financial firm. AUM provides an indication of how significant the firm is in comparison to its competitors and gives an idea of the potential for growth based on whether the customer base is expanding over time.
Firms with a larger AUM are also typically subject to more stringent regulations. In the US, for example, the federal investment regulatory agency the SEC oversees regulation for investment firms with an AUM of more than $110 million, while firms with an AUM lower than this are answerable to state regulators. As AUM fluctuates over time, it can only ever provide a rough measure of the potential liquidity and size of a fund. However, when combined with other factors and calculations it can help investors make better decisions.