Assets Under Management (AUM)

Key takeaways

• Assets under management (AUM) is the total market value of investments that a manager or firm oversees on behalf of clients.
• AUM fluctuates with market performance, investor inflows and outflows, and reinvested earnings.
• Large AUM often implies greater liquidity and perceived stability, but it does not guarantee better returns.
• Many advisory and fund fees are charged as a percentage of AUM, though fee structures vary by client type and product.

What is AUM?

Assets under management (AUM) measures the market value of all assets—stocks, bonds, cash equivalents, mutual funds, ETFs, and other securities—that an investment manager, fund, or firm manages for clients. It represents the pool of capital available to that manager and is commonly used to describe the scale of an investment business or product.

Investors often use AUM as one indicator of size, liquidity, and market trust in a fund or manager. A large AUM can make buying and selling easier (higher liquidity) and signal that many investors have entrusted capital to the manager.

How AUM is calculated

There is no single universal method; calculations vary by firm and by what is included. The general steps are:
* Identify all assets managed on behalf of clients.
* Value each asset at current market prices (or fair value for illiquid holdings), applying currency conversions where necessary.
* Sum the market values to arrive at total AUM.

What gets included differs across firms:
* Some include discretionary assets only (assets the manager can trade without client approval).
* Others include non-discretionary holdings, custody assets, or bank deposits and cash balances.
* AUM rises with market appreciation, reinvested dividends, and new investor inflows; it falls with market losses, redemptions, and fund closures.

Regulation and thresholds

Regulatory registration for investment advisers depends in part on AUM:
* Advisers below certain AUM thresholds are typically registered at the state level.
* Firms that exceed the applicable thresholds are required (or eligible) to register with national regulators.
Thresholds and requirements vary by jurisdiction and can include transitional ranges where advisers may choose either state or national registration.

AUM and fees

Many managers and advisers charge fees as a percentage of AUM (for example, 1% annually). Key points:
* Fee rates vary by product: actively managed funds typically charge more than passive funds.
* Institutional and large clients often negotiate lower fee schedules than retail clients.
* Higher AUM does not automatically mean higher fees for the manager—scale can lead to volume discounts and different pricing tiers.

AUM as a business and marketing tool

Firms aim to grow AUM because larger asset bases can:
* Increase fee revenue (depending on fee structure).
Provide scale for product development and operational investments.
Serve as a marketing signal: larger AUM is often promoted to attract new investors by implying stability and credibility.

Growth strategies include client acquisition, product differentiation (creating specialized funds or platforms), and broadening distribution channels.

Investor psychology and AUM

Investor behavior affects and is affected by AUM:
* Rising optimism and positive performance can drive inflows, boosting AUM.
* Panic or market downturns can trigger redemptions, shrinking AUM.
* Herd behavior can lead investors to favor funds with the largest AUM, which may perpetuate inflows regardless of underlying fundamentals.

Example

Large, widely used ETFs and mutual funds often accumulate very large AUM. For example, broad-market ETFs that track major indexes can hold hundreds of billions of dollars. The firm sponsoring such funds may manage trillions of dollars across many funds and strategies.

Explain Like I’m Five

AUM is like the total amount of money in a treasure chest that a manager watches over and uses to buy and sell things for people. If the chest gets a lot bigger, it usually means many people trust that manager. If it gets smaller, people might be taking their money out.

FAQs

Q: What exactly counts toward AUM?
A: Typically all client assets the manager oversees—stocks, bonds, cash equivalents, mutual funds, ETFs, and similar securities—valued at current market prices. Inclusion rules can vary by firm.

Q: Does higher AUM mean better investment performance?
A: Not necessarily. Higher AUM indicates scale and often greater liquidity, but performance depends on the manager’s skill, strategy, and market conditions.

Q: How does AUM affect liquidity?
A: Larger funds tend to have higher trading volumes and deeper markets, making it easier to buy or sell shares without large price impacts.

Bottom line

AUM is a core metric for gauging the size and reach of a fund or investment manager. It provides insights into liquidity, perceived credibility, and potential fee revenue, but it should be evaluated alongside performance, fees, investment strategy, and manager qualifications when choosing where to invest.