What Are Assets Under Management (AUM)?
Assets under management (AUM) is the market value of the investments managed by a person or entity on behalf of clients. AUM is used in conjunction with management performance and management experience when evaluating a company.
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When calculating AUM, some financial institutions include bank deposits, mutual funds, and cash, while others limit it to funds under discretionary management from individual investors.
Key Takeaways
- Assets under management (AUM) is the total market value of the investments managed by a person or entity on behalf of investors.
- AUM fluctuates vĩ đại reflect the flow of money in and out of a fund and the price performance of the assets.
- A fund's management fees and expenses are often calculated as a percentage of AUM.
Understanding Assets Under Management (AUM)
AUM is the sum of the market value for all of the investments managed by a fund or family of funds, a venture capital firm, a brokerage company, or an individual registered as an investment advisor or portfolio manager. When an investor has $50,000 in a mutual fund, those funds are part of the total AUM of the pool of funds. The fund manager can buy and sell shares according vĩ đại the investment objective using all invested funds without obtaining special permissions.
AUM includes the capital the manager can use vĩ đại make transactions for one or all clients. An investor may need a minimum amount of personal AUM vĩ đại qualify for a type of investment, such as a hedge fund, vĩ đại ensure the client can withstand adverse markets. An investor’s AUM may coincide with their net worth and may determine the type of services received from a financial advisor or brokerage company.
Investors often consider higher investment inflows and higher AUM of a financial institution as positive indicators of quality and management experience.
Calculating AUM
Calculating assets under management varies among companies and depends on the flow of investor money in and out of a fund. Asset performance, capital appreciation, and reinvested dividends increase the AUM of a fund. Assets under management also increase when new customers and their assets are acquired. A decrease in AUM occurs following losses in the market value or performance of assets, fund closures, and decreased investor in-flows.
The U.S. Securities and Exchange Commission (SEC) requires firms vĩ đại register with the SEC with AUM ranging between $25 million vĩ đại $110 million, depending on several factors, including the size and location of the firm. The SEC regulates the financial markets vĩ đại ensure that it functions properly.
AUM and Fees
AUM is a consideration when calculating fees. Many investment products charge management fees as a fixed percentage of AUM. Financial advisors and personal money managers charge clients a fee as a percentage of personal assets under management. Fees commonly decrease as AUM increases, and financial professionals can attract high-wealth investors.
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AUM Examples
SPY
The SPDR S&P 500 ETF (SPY) is an exchange-traded fund. An ETF is a fund that contains several stocks or securities that match or mirror an index, such as the S&P 500. The SPY has all 500 of the stocks in the S&P 500 index. As of June 14, 2023, the SPY had assets under management of $412.25 billion.
EDOW
The First Trust Dow 30 Equal Weight ETF (EDOW) tracks the 30 stocks in the Dow Jones Industrial Average (DJIA). As of June 14, 2023, the EDOW had assets under management of $189.58 million.
How Is AUM Used as a Tool by Investment Companies?
Investment companies use assets under management as a marketing tool vĩ đại attract new investors. AUM helps investors determine the size of a company's operations relative vĩ đại its competitors.
What Does AUM Tell Potential Investors?
When evaluating a specific fund, investors often look at its AUM as an indication of the size of the fund. Typically, investment products with high AUMs have higher market trading volumes making them more liquid, meaning investors can buy and sell the fund easily.
What Is the Benefit of a Fund With a Large AUM?
Funds with large AUMs have sufficient holdings vĩ đại meet any redemption pressure. If a few large investors leave the fund, it would not likely impact it.
The Bottom Line
Assets under management (AUM) is the market value of the investments managed by a person or entity on behalf of clients. AUM can reveal the management performance and experience when investors evaluate a company or investment. The SEC regulates firms with large AUMs vĩ đại protect investors.
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