Last editedSep 20222 min read
In the financial industries, if something is described as “under management” this refers to an asset or fund managed by a third party on the client’s behalf. Examples of third parties would include mutual fund managers or investment advisors. We’ll cover the ins and outs of assets under management vs. funds under management below, as well as how they’re accounted for.
What is assets under management?
Assets under management, or AUM, is a term describing the total market value of any investments managed by a third party. These might include your investments in a mutual fund, wealth management firm, or hedge fund. They could also include your company’s assets managed by a financial advisor, or a stock portfolio managed by a consultant. When a third-party individual or firm controls someone else’s money, this money is called the assets under management.
What are funds under management?
Funds under management are a specific component of AUM. This subset includes any growth funds that a manager can access, such as hedge funds and mutual funds. For example, imagine that you have $100,000 sitting in a mutual fund. The fund manager can access this portion of your assets under management to buy and sell related stocks and shares, without your direct permission. However, you are still the owner of the funds. The fund manager will charge a fee for the admin costs and professional expertise involved in managing this investment.
Yet there are also portions of assets under management that might not be held specifically in funds, which is why there is a distinction between the two terms. The total AUM might therefore include cash and bank deposits, as well as funds under management.
How are assets under management calculated?
This depends on the institution or investor. Some will only include funds under management, while others will include additional assets such as bank deposits and cash. The issue is further complicated by everyday market fluctuations. Money is constantly flowing in and out of an investment fund according to these fluctuations, which means assets under management value can change from one minute to the next.
Keeping all this in mind, how can you calculate your assets under management? The figure will often be a general estimate rather than a hard number, giving a snapshot in time of what you have managed by a finance professional. You should look at dividends paid out, the acquisition of new assets, and the assets’ performance as well as their current market value.
Financial institutions and fund managers also have different definitions for assets under management. Some will refer to a single investor’s portfolio, while others will refer to their total assets across all investors.
Assets under management example
To see any real-life assets under management examples, you can look at exchange traded funds (ETFs) like the SPDR S&P 500. This contains a bundle of securities that mirror the S&P 500. By examining the current fund value, you can see its assets under management at the same time.
Ultimately, assets under management are important to understand whether you’re a small business, individual investor, or financial institution. It’s a key metric to compare if you’re seeking a portfolio manager, for example. Institutions with larger AUM typically have larger revenues as a result, which is why many investors opt for big names like BlackRock, UBS Group or Vanguard Group. These firms have the largest assets under management in the United States. According to the Securities and Exchange Commission, any advisor handling over $25 million must be registered, which is another factor to keep in mind. Finally, remember that AUM can fluctuate according to market performance, as with any type of investment.
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