Assets Under Management (AUM) Definition

Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.

Some financial institutions include bank deposits, mutual funds, and cash in their calculations. Others limit it to funds under discretionary management, where the investor assigns authority to the company to trade on his behalf.

AUM refers to how much of investors’ money a financial company or financial professional has to work with—the sum of the investments managed by a mutual fund or family of funds, a venture capital firm, brokerage company or an individual registered investment advisor or portfolio manager.

Used to indicate the size of a fund, AUM can be segregated in many ways. It can refer to the total amount of assets managed for all clients or the total assets managed for a specific client. It includes the funds the manager can use to make transactions, usually on a discretionary basis. For example, if an investor has $50,000 invested in a mutual fund, those funds become part of the total AUM and the fund manager can buy and sell shares in accordance with the fund's investment objective using all of the invested funds without obtaining any special permissions.

Within the wealth management industry, some investment managers may have requirements based on AUM, and it may determine if an investor is qualified for a certain type of investment, like a hedge fund. An investor’s individual AUM can also be a factor in determining the type of services received from a financial advisor or brokerage company. In some cases, individual assets under management may also coincide with an individual's net worth.

Fluctuating daily, AUM depends on the flow of investor money in and out of a particular fund and asset performance. Increased investor flows, capital appreciation and reinvested dividends will increase the AUM of a fund. Adversely, decreased investor flows and market value losses will decrease the AUM of a fund. In the United States, once a firm has more than $30 million in assets under management, it must register with the Securities and Exchange Commission.

Methods of calculating assets under management vary among companies. Total firm assets under management will increase when investment performance increases or when new customers and new assets are acquired. Factors causing decreases in AUM include a drop in market value from investment performance losses, fund closures, and client redemptions. Assets under management can be limited to all of the investor capital invested across all of the firm’s products or it can include capital owned by the investment company executives.

Monitoring AUM by investment strategy and investor product flows is important for management in determining the overall strengths and weaknesses of a firm. Investment companies also use assets under management as a marketing tool to attract investors. AUM can help investors get an indication of the size of a company's operations relative to its competitors.

AUM may also be an important consideration for fees. Investment products can charge management fees that are a fixed percentage of assets under management. Financial advisors
and personal money managers also often charge clients a percentage of their total assets under management. Typically, this percentage decreases as the AUM increases.

When evaluating a specific fund, investors often look at its AUM. Similar to the market capitalization of a company, assets under management functions an indication of the size of the fund. Products with higher AUM typically have higher market trading volumes, which means they are more liquid.

For example, the SPDR S&P 500 ETF (SPY) is one of the largest equity exchange-traded funds on the market today. As of April 4, 2019, it had assets under management of $264 billion with an average daily trading volume of 80.8 million shares. The high trading volume means liquidity is not a factor for investors when seeking to buy or sell shares of the ETF.

In comparison, the First Trust Dow 30 Equal Weight ETF (EDOW) has assets under management of $14.2 million and much lower trading volume, averaging 2,795 share per day. Liquidity for this fund could be a consideration for investors.

Overall, AUM is only one aspect used in evaluating a company or investment. It is usually also considered in conjunction with management performance and management experience. However, generally, investors can consider higher investment inflows and higher AUM comparisons as a positive indicator of quality and management experience.