What are Assets Under Management?
Assets Under Management (AUM) refers to the total market value of investment assets that an individual or an investment company manages on behalf of its clients. This figure represents the total value of all securities, real estate, commodities, and other financial assets that are under the management of the investment company or individual.
AUM is an important metric for investors and investment companies as it provides an estimate of the size and the scale of their business operations. For instance, a high AUM figure would indicate a large and successful investment firm, while a low AUM would suggest a smaller and less established operation.
Investment companies and individuals can manage a wide range of assets, including equities, bonds, mutual funds, real estate, and alternative investments. AUM is calculated by adding up the market value of all the assets managed by the investment company or individual and is typically expressed in terms of dollars or other currency.
AUM is often used by investors to assess the performance of an investment company or individual. For example, if the AUM of an investment company increases over time, it could indicate that the company is successfully attracting new clients and managing their assets effectively. On the other hand, if the AUM decreases, it could suggest that the company is struggling to retain clients or is experiencing difficulty in managing the assets it holds.
In the financial industry, AUM is often used as a measure of the fees that investment companies and individuals can charge their clients. Generally, the higher the AUM, the higher the fees that the investment company or individual can charge.
Simplified Example
Assets Under Management (AUM) can be thought of as a piggy bank. Just like a piggy bank holds your money, AUM refers to the total amount of money that a company or a person manages for others. For example, if you have a big piggy bank, that means you have a lot of money in it, and you are responsible for managing and using it wisely. In the same way, a company or a person with a lot of AUM is responsible for managing and investing a lot of money on behalf of others.
History of the Term "Assets Under Management"
The term "Assets Under Management (AUM)" is thought to have originated in the investment industry during the early to mid-20th century. With the expansion and increased complexity of the investment sector, there was a growing need for a standardized metric to gauge the size and performance of investment management firms. AUM emerged as a convenient and comprehensive measure, providing a quantifiable representation of the total market value of assets that a firm oversees on behalf of its clients.
Examples
Mutual Fund AUM: A mutual fund has $500 million in assets under management. This means that the fund is responsible for managing $500 million worth of investments on behalf of its shareholders. The investments may include stocks, bonds, real estate, and other assets, and the fund's goal is to generate returns for its shareholders by investing in a diversified portfolio. The mutual fund charges an annual management fee, which is a percentage of the AUM, to cover its operating expenses.
Pension Fund AUM: A pension fund has $1 billion in assets under management. The pension fund is responsible for managing the retirement savings of its members, including employees from a particular company or government employees. The pension fund invests the contributions made by its members, as well as any returns generated from its investments, to provide a steady stream of income to its members upon retirement. The pension fund has a long-term investment horizon, and its investments may include stocks, bonds, real estate, and other assets.
Hedge Fund AUM: A hedge fund has $250 million in assets under management. The hedge fund invests in a variety of assets, including stocks, bonds, currencies, and commodities, with the goal of generating high returns for its investors. Unlike mutual funds, hedge funds typically use more aggressive investment strategies, such as short selling, leverage, and derivatives, to maximize returns. The hedge fund charges a management fee, which is a percentage of the AUM, as well as a performance fee, which is a percentage of the returns generated by the fund.
Related Terms
Asset-Backed Tokens: A type of digital token that represents ownership of a physical or non-physical asset.
Investment Vehicle: Any method or structure used to invest money with the expectation of earning a return.