Assets under management

Assets under management (AUM) is the total market value of financial assets that an investment manager, investment fund, financial institution, or other asset management organization manages on behalf of clients or investors. Assets under management may include stocks, bonds, cash and cash equivalents, mutual funds, exchange-traded funds (ETFs), real estate, commodities, alternative investments, and other financial assets. AUM is one of the principal measures used to assess the size and scale of investment managers, investment funds, pension funds, insurance companies, sovereign wealth funds, and wealth management firms. The value of assets under management fluctuates over time due to changes in market prices, investment performance, investor subscriptions and redemptions, currency movements, and portfolio transactions.

History

The concept of assets under management developed alongside the growth of professional investment management during the twentieth century. As collective investment schemes, pension funds, insurance companies, and institutional investors expanded, financial institutions increasingly used AUM as a standardized measure of the scale of investment operations.

The growth of mutual funds, index funds, exchange-traded funds, and discretionary portfolio management further increased the importance of AUM as a benchmark for comparing investment managers and evaluating trends within the asset management industry.

Today, assets under management are widely reported by investment firms, regulators, financial analysts, and research organizations.

Definition

Assets under management generally represent financial assets over which an investment manager exercises discretionary or contractual management authority.

Depending on the applicable regulatory framework and reporting standards, AUM may include:

• assets held in investment funds;
• discretionary portfolio management accounts;
• pension fund assets;
• institutional investment mandates;
• wealth management portfolios;
• retirement accounts;
• alternative investment funds.

The precise definition of AUM may vary among jurisdictions and financial institutions.

Calculation

Assets under management are generally calculated by aggregating the market value of all assets managed on behalf of clients.

The basic calculation is:

$\mathrm{A}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}\mathrm{U}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{r}\mathrm{M}\mathrm{a}\mathrm{n}\mathrm{a}\mathrm{g}\mathrm{e}\mathrm{m}\mathrm{e}\mathrm{n}\mathrm{t}=\sum _{i=1}^n{\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}}_i$

where:

• ${\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}}_i$ represents the current market value of each managed asset; and
• $n$ represents the total number of assets or investment positions included in the calculation.

The reported value is typically based on current market prices and is updated periodically.

Assets included

Assets commonly included in AUM calculations include:

• stocks;
• bonds;
• money market instruments;
• cash and cash equivalents;
• mutual funds;
• exchange-traded funds;
• real estate investment trusts;
• derivatives, where applicable;
• private equity investments;
• hedge fund assets;
• real estate investments;
• infrastructure investments.

Some firms also include advisory assets or assets under administration, although these may be reported separately.

Factors affecting AUM

Assets under management change over time due to several factors.

These include:

• investment performance;
• market appreciation or depreciation;
• investor subscriptions;
• investor redemptions;
• mergers and acquisitions;
• changes in exchange rates;
• portfolio rebalancing;
• dividend and interest income.

Positive investment returns and net investor inflows generally increase AUM, while market declines and investor withdrawals reduce it.

Applications

Assets under management are widely used in the investment industry.

Major applications include:

• measuring the size of investment managers;
• comparing investment funds;
• calculating management fees;
• evaluating market share;
• financial reporting;
• regulatory disclosures;
• performance analysis;
• industry research.

Many investment management fees are calculated as a percentage of assets under management.

Relationship with management fees

Investment managers frequently charge fees based on assets under management.

The annual management fee may be expressed as:

$\mathrm{M}\mathrm{a}\mathrm{n}\mathrm{a}\mathrm{g}\mathrm{e}\mathrm{m}\mathrm{e}\mathrm{n}\mathrm{t}\mathrm{F}\mathrm{e}\mathrm{e}=\mathrm{A}\mathrm{U}\mathrm{M}\times \mathrm{F}\mathrm{e}\mathrm{e}\mathrm{R}\mathrm{a}\mathrm{t}\mathrm{e}$

For example, a fund with assets under management of US$1 billion and an annual management fee of 0.50% would generate annual management fees of US$5 million, excluding any performance-based fees.

Limitations

Although AUM is an important measure of organizational scale, it has several limitations.

These include:

• it does not directly measure investment performance;
• it fluctuates with market conditions;
• reporting methodologies differ among institutions;
• definitions may vary across regulatory jurisdictions;
• larger AUM does not necessarily indicate superior investment management.

Accordingly, AUM is often considered alongside performance metrics, risk measures, and fee structures.

Impact

Assets under management have become one of the principal indicators of the size and influence of investment managers and the broader asset management industry. AUM is widely used by investors, regulators, analysts, and policymakers to evaluate investment firms, monitor capital flows, assess industry trends, and compare financial institutions. The growth of passive investing, retirement savings, sovereign wealth funds, and institutional asset management has contributed significantly to the increase in global assets under management over recent decades.

See also

• Investment management
• Investment fund
• Mutual fund
• Exchange-traded fund
• Index fund
• Portfolio management
• Asset allocation
• Net asset value
• Stock
• Bond
• Capital market
• Wealth management
• Hedge fund
• Pension fund
• Sovereign wealth fund