Assets Under Management

What Is It?

Assets under management (AUM) refers to the value of the assets managed by a money manager such as a mutual fund investment manager or asset manager. Total AUM is calculated by adding up the amount of stocks and bonds under the investment manager’s control and subtracting liabilities related to those assets. Typically, AUM refers only to assets being managed for investment purposes by a money manager, and not to bank deposits and other cash accounts not currently being managed by a financial firm.

A mutual fund, for example, may have $150 million in assets in a fund, with $5 million in liabilities, giving the fund a total AUM of $145 million. Another example would be if a money manager had 10 clients each of which contributed $10 million in assets, adding up to a total AUM of $100 million for the money manager.

What Is It Used for?

AUM is typically the headline number used in assessing asset managers: generally speaking, having a large AUM is associated with asset managers who are successfully able to operate at scale. Analyzing assets under management is important from the perspective of the expenses a fund’s asset manager charges.

Funds often charge investors expenses representing a fixed percentage of AUM. Asset managers with smaller AUMs will generally charge higher expenses as a percentage of an investor’s investment than those with larger AUMs. Their greater asset base makes it easier for high AUM asset managers to charge lower expenses.

Evaluating AUM is also used as a method of gaining insight into a fund’s success and history. Although this is not always the case, funds with low AUM may be new entrants to the field, or may not have performed well enough attract significant assets.

Other Considerations

AUM is just one factor that can be used in analyzing funds. Considering other factors can help provide insight into a fund. For instance, a fund with excellent performance might have a low AUM because it is based on a sector that has only a small number of securities to invest in. In such a case, a low AUM does not necessarily indicate that a fund is new or that it’s performance has not been good.

It should also be noted that funds with low AUMs do not necessarily have higher expense ratios than larger funds. In some cases, the management companies sponsoring a fund will set the fund fees low to attract investors.