Definition
Assets Under Management (AUM) refers to the total market value of all the investments that a financial institution or portfolio manager oversees on behalf of clients. It’s used to gauge a firm’s size and success, greatly influencing potential investors’ decisions. AUM can encompass a variety of investments such as real estate, stocks, bonds, and funds.
Phonetic
The phonetics for the keyword, “Assets Under Management (AUM)” would be: “æ-sɛts ʌndər mænɪdʒmənt (eɪ – juː – ɛm).”
Key Takeaways
- Definition of AUM: Assets Under Management (AUM) refers to the total market value of investments managed by a mutual fund, financial institution, venture capital firm, or an individual portfolio manager.
- Significance of AUM: The AUM is an indication of the size and success of a financial firm in attracting investors. Higher AUM means more earnings from management fees for the firm. It denotes credibility, experience, and the extensive customer base of a firm.
- Fluctuation of AUM: AUM can change based on various factors like an increase/decrease in the value of investments due to market fluctuations, or because of the addition/withdrawal of funds by investors. Thus, it requires regular monitoring and adjustments.
Importance
Assets Under Management (AUM) is a crucial term in the finance industry as it represents the total market value of all the funds being managed by a financial institution or an investment company. AUM is a key indicator of a firm’s size and success, reflecting its overall performance and ability to attract and retain investors. High levels of AUM typically imply institutional investor trust and a proven track record of investment performance, while also serving as a critical basis for fees calculation. Hence, AUM is closely tracked by firms, investors, and industry analysts as a measure of a firm’s performance and viability within the competitive finance industry.
Explanation
Assets Under Management (AUM) serves as a key metric that measures the total market value of all the financial assets that a financial institution such as a mutual fund, venture capital firm, brokerage, or investment advisor manages on behalf of its clients and themselves. AUM is used in the finance industry as an indication of the size and success of these institutions. Higher AUM usually means the institution has been successful in attracting clients and delivering performance, leading more investors to trust them with their assets. It’s a crucial measure for investors when deciding which institution to trust with their investments. Furthermore, AUM is not just a reflection of a firm’s reputation and success, but it’s also typically tied to their income as well. Many asset management companies charge a management fee that is a percentage of the total assets under management. Therefore, the higher the AUM, the higher the revenue for the company. This can directly affect the quality of service rendered as higher earnings may enable the company to invest more in researching and managing their investment products. Hence, AUM serves a dual purpose: on one hand, it indicates the firm’s ability to attract and retain investors, and on the other hand, it is a significant determinant of the firm’s revenue and operational capability.
Examples
1. BlackRock Investment Firm: BlackRock, an American multinational investment firm, is known as the largest fund manager in the world. As of December 2020, it reported Assets Under Management (AUM) of about $8.68 trillion, including mutual funds, pension funds, and alternative investments, among others. 2. Vanguard Group: Vanguard Group, another heavyweight in the financial industry, reported $6.2 trillion in global assets under management as of January 2020. They manage a wide array of assets such as stocks, bonds, mutual funds, and exchange traded funds for their clients. 3. J.P. Morgan Asset Management: As one of the world’s leading asset management firms, J.P. Morgan manages a massive amount of assets. According to their own reports, they had $2.2 trillion in Assets Under Management as of December 2020. Their clients are institutional, high net worth and retail investors, for whom they manage a variety of asset types.
Frequently Asked Questions(FAQ)
What does Assets Under Management (AUM) mean?
How is AUM calculated?
Why is AUM important in finance and business?
Does a higher AUM indicate a more successful investment firm?
Does an investor’s contribution or withdrawal affect the AUM?
Can AUM fluctuate?
Is AUM the same as market capitalization?
How often is AUM reported?
Related Finance Terms
- Portfolio Management
- Investment Strategy
- Fund Performance
- Client Retention
- Wealth Management
Sources for More Information
