Assets Under Management (AUM) is the term that indicates the total market value of the investment managed by an investment company, mutual fund, exchange-traded fund (ETF), or by an individual on behalf of a client.
The value of the assets under management is heavily dependent on the market stability and volatility, along with the fund management expertise and knowledge.
What Does Asset Under Management (AUM) Mean?
The financial term AUM (Assets Under Management) signifies the total value of the assets managed by an individual or an investment fund on behalf of clients. This term signifies how many assets an individual or a financial institute manage, which further shows the value or the expertise of the particular individual or institution.
Importance Of Assets Under Management
The AUM does have a lot of importance in the investment field. For the investors, it provides a clear overview of a certain fund manager, fund, investment vehicle, etc.
Here are some important things you would like to know.
Overview Of The Fund
The AUM gives a brief overview of the market value of the fund, showing the position the fund holds in the market.
It’s like judging a fund’s management capabilities & their capacity to handle a large sum of money. When a fund has large AUM, it basically suggests their expertise & experience in the said market.
Fund Fees
The size of AUM (Assets Under Management) also decides the fees you will pay to invest in a certain fund. If a fund has a large AUM, then it will have a minimum required investment rule.
And, if you can’t meet the minimum requirement of investment, then you will miss out on the fund. However, if you manage to invest in a large fund with a high minimum investment, your brokerage fees will also increase substantially.
Market Performance
The size of the AUM also dictates the overall market performance of a certain fund. In the case of larger AUM funds, they will have a lower risk appetite than a smaller AUM fund, because a small wrong move can wipe out a big chunk of the fund, which will be catastrophic.
So, they try to move as slowly and carefully as possible to keep the fund growth stable & liquid.
They’re also very trapped to sudden market opportunities & movement, they can’t just liquidate their one position for a different position suddenly, it will cause huge panic and liquidity chaos in the market.
So, there are strict rules for larger AUM funds, which they’re obliged to follow for certain liquidity practices.
How To Calculate The AUM
Every company uses its own method of calculating assets under management (AUM) based on the current net asset value it holds. Basically, it depends on various things such as new investments and withdrawal of the investors, market volatility, the invested asset performance, etc.
AUM can increase if the fund produces better multiples on the invested assets, or if the fund reinvests the dividends into buying new or diversified assets.
And the AUM value can be decreased if the asset class underperforms or if the market performance is bad, which results in a loss of asset value.
The standard formula to calculate the total AUM is to aggregate the total market value of the assets for any particular fund, which either invests in stocks, ETFs, gold, silver, any other commodities, cryptocurrency, valuable antiques, any type of securities, etc., or a mix of them.
So, first you need to calculate the market value of the assets from each asset class, then add them together to get the total Assets Under Management of any fund.
I know at first it looks overwhelming, but don’t worry, it’s one of the easiest things in the financial world, and you’ll get to know more interesting things.
Biggest Asset Under Management (AUM) Funds Globally
Here’s the biggest funds with the biggest AUMs:
- BlackRock (U.S.): $15.3 trillion (Approx.)
- Vanguard (U.S.): $12 trillion (Approx.)
- Fidelity Investments (U.S.): $7 trillion (Approx.)
- UBS Group (Switzerland): $6.9 trillion (Approx.)
- State Street Corporation (U.S.): $6.28 trillion (Approx.)
- JPMorgan Chase (U.S.): $5.14 trillion (Approx.)
FAQ
A large AUM fund signals trust to the new investors. A large AUM fund means a lot of investors trust in this fund and are willing to invest their hard-earned money.
There are two ways to look at that. Firstly, a higher AUM suggests a fund’s authority and investors’ trust, where a small AUM fund may seem a little risky, but it can offer better results because of its ability to pivot to new investment opportunities more effectively. So, basically, it’s up to you what you prefer: higher return and higher risk, lower return and lower risk, or a mix of both. Good or bad, it’s up to you to decide.
When AUM decreases, it can indicate many things, such as loss of market value of the assets, heavy outflow of investor money, any asset wing closures, or less new investment compared to withdrawal.