• Assets under management describes the total market value of assets managed by a financial institution (called an asset or fund management company) on behalf of its clients.
• Examples of financial institutions that measure AUM include brokerages, mutual funds, venture capital firms, and financial advisor companies.
• The bigger the AUM, the more trustworthy the financial institution appears to investors.

Assets under management (AUM) is a measure of the total market value of the financial assets held or managed by a financial institution on behalf of its clients. For example, the AUM for a portfolio manager would reflect the amount of money said investment manager controls for all of their clients. If you invest in the portfolio, whatever amount you invest will be added to its AUM.

AUM is also referred to as funds under management. It is a popular measure of growth for a company and is often expressed historically to show the development of a company or lack thereof. It’s important to note that AUM is measured differently depending on the financial institution or individual, with some groups only counting discretionary funds given to advisors of the company by investors.

What Does AUM Measure?

Assets under management measures the aggregate value of the assets that a financial institution holds on behalf of its clients, i.e., its investors or shareholders. They’re usually held on a discretionary basis (meaning they can trade or reinvest them to grow the fund).

A financial institution that does this is called an asset or fund management company or asset or fund manager. Brokerages and mutual funds are two common examples of these financial services companies.

AUM figures can help investors assess business trends and choose which institution should manage their holdings. Generally speaking, the bigger the AUM, the more trustworthy the institution appears since larger AUMs may mean the company has successfully managed funds for years, has a huge capital, or both. A smaller AUM isn’t necessarily a bad sign, as all companies have small AUMs when first starting out. It can take time to build a more impressive list of clients, and one big investment can have a big impact on a new company’s AUM.

Federal regulators may also look at AUM to determine whether the asset management company complies with applicable statutes. For instance, the Securities and Exchange Commission has set an AUM value threshold, above which the company must register as a Registered Investment Adviser (RIA) at the federal level. Institutions with over $110 million AUM must be registered with the SEC, while any company with a smaller AUM must register with their state’s securities administrator. Companies in New York and Wyoming are exempt from this requirement and must register with the SEC even if they have an AUM under $110 million.

Finally, AUM is a key metric of performance in the financial industry. One reason is that larger AUMs translate to larger revenues in management fees. Asset managers (as an entity) use these fees to cover various expenses, including managing the fund and providing financial advisory services.

AUM fees are typically a percentage of the AUM value and may be paid monthly, quarterly, annually, or on other agreed-upon bases to the asset management company.

Biggest Asset Management Companies by AUM

BlackRock Inc., a global investment company based in New York City, is the biggest financial institution based on AUM value. As of this writing, it is the first public asset management company to hold and manage assets surpassing $10 trillion in aggregate market value.

Other multi-trillion dollar asset managers include The Vanguard Group, UBS Group, Morgan Stanley, and Allianz.

Companies calculate AUM differently based on what they consider assets. For example, investment banks may include cash, bank deposits, and mutual funds when calculating AUM, while others may consider only the funds under their discretionary management (i.e., funds that investors have authorized the portfolio manager to trade and invest on their behalf).

Generally speaking, though, assets are pooled into a fund to be managed by the asset manager. The total market value of all these assets makes up what is known as the AUM.

For example, assuming a person invested $25,000 in a mutual fund, those funds become part of the pool of funds and increase the AUM value. Moreover, because the fund manager already has the authority to allocate the funds at their discretion, they can trade shares and invest in securities pursuing the fund’s investment objective without having to obtain any special permissions.

AUM values change over time based on how much investment or how many investors are involved in a fund. A decline in the number of investors will lead to a lower AUM value.

For those interested in wealth management, AUM matters because it’s a very useful metric representing a company’s growth and consistency. Being able to track an upward AUM trajectory speaks highly of a company’s management skills, and adds credibility to their work. For investors looking for somewhere to put their money, AUM provides an easy way to gauge an asset management firm’s quality of work.

However, we should repeat again that a smaller AUM does not necessarily reflect negligence or poor quality of work. Every company starts with a smaller amount of assets and needs time to grow it. Still, for a metric of total capital, the number of investors, and, by extension, investor confidence, AUM is very useful.

Drastic changes in an asset management firm’s AUM can be a cause for concern. Companies that are still finding their footing, have less investor confidence, or are overly ambitious may suffer from a less stable AUM. Here are two factors that can affect swings in AUM.

Volatility

When the market value of assets under management increases, so does the AUM value, and vice versa. If the fund invests in volatile securities, its AUM will likely experience sharper fluctuations in value than a fund that invests in low-volatility assets. In addition, if the fund experiences frequent inflows and outflows, the portfolio itself is more volatile because its assets are moving in and out more frequently.

The level of volatility may depend on whether the assets in the fund are liquid or illiquid. The liquidity of an asset is a measure of how quickly and easily it can be converted into cash or cash equivalents, including short-term government bonds, Treasury Bills, stocks, and other money market instruments.

Funds invested in illiquid securities such as real estate, rare collectibles, and highly prized artworks may be less volatile since these assets generally take longer to sell or dispose of, meaning their AUM values will likely be more stable.

To avoid a potential loss of value from volatility, the asset management company may apply certain measures, including:

• Lock-up periods — This is when withdrawal from the fund is prohibited. The securities are “locked up,” giving the fund time to grow, or at least not be diminished by mass cashing-in of their stock, during that period.
• Closing the fund to new inflows — This is usually done to avoid uncontrolled growth of AUM. Having too many assets under management may soon lead to allocation problems.

It is in the institution’s interest to keep the volatility of AUM under control since it allows them to manage the fund and pursue their goals without deviating from their investment strategy.

Dividends

Dividends impact the AUM value because distributing and reinvesting them represent adding and subtracting from the AUM. If the dividends are reinvested, it will increase the AUM value. Conversely, if the dividends are paid out, that represents an outflow from the fund and will decrease the AUM value.

Dividends may also affect the NAV (net asset value) in the same way that distributing them affects the price per share of the asset.

Be careful not to mix up assets under management with these related but different terms. Though they all relate to the money held by an asset management company, they differ in important ways.

AUM vs. AUA (Assets Under Administration)

AUM measures the total market value of assets managed by a financial institution on behalf of its clients. AUA is a measure of the total assets for which the institution provides administrative services. AUA is also sometimes called “assets under advisement.”

These administrative services include custody of assets, settlement of trades, accounting and tax reporting, and trade reporting. Essentially, the client retains ownership and control of assets, while the financial institution with AUA acts as a third-party administrator.

Large banks often have AUAs. They are charged with safely storing clients’ assets, but they usually do not possess the discretionary power to manage (i.e., reinvest or trade) them.

AUM vs. NAV (Net Asset Value)

While AUM represents a company’s total assets, net asset value, or NAV, represents a company’s total assets minus its total liabilities. NAV is calculated by most mutual funds and unit investment trusts (UITs) daily, usually after the major U.S. exchanges close. The NAV value is used to quantify a second value, per share NAV, which is found by dividing the NAV by the total number of shares that are outstanding. The per share NAV, plus any fees funds or UITs want to impose, will often be the cost of buying into one of these asset management companies.

Assets under management (AUM) represents the total market value of assets held by a financial institution. AUM is used by many investors to track the growth of companies over time, and to gauge their trustworthiness by how much capital and how many investors they manage. AUM is a very useful tool in assessing whether you should use a certain asset management firm.

Different groups quantify AUM in different ways. If you notice large swings in a company’s AUM, it may reflect investment in volatile, liquid securities. A more stable AUM typically reflects better on a company, as it shows they are not overly ambitious and are more trusted by their investors. Be sure not to mix up AUM with other similar metrics like assets under administration and net asset value.

What is AUM?

AUM, or assets under management, describes the total market value of assets managed by a financial institution on behalf of its clients.

Why is AUM important?

It’s a useful metric for tracking the growth of a company and the growth of its asset management over time. Growth in capital or the number of investors can be reflected in AUM, and suggest healthy development in a company.

What could big changes in a company’s AUM represent?

It could mean that the company is invested in volatile, liquid securities, has a large flow of assets into and out of the company, or pays out large dividends. Many companies use tools like lock-up periods and limiting their fund to make their AUM more stable.