Assets Under Management - Explained
What are Assets Under Management?
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Table of ContentsWhat are Assets Under Management?How Does Assets Under Management Work?Calculating Assets Under ManagementWhy Assets Under Management MattersAssets Under Management as a Factor for InvestmentAcademics Research on Assets Under Management AUM
What are Assets Under Management?
Assets under management (AUM) measures the total value of investment managed by an investment company, a mutual fund, hedge fund or financial institution. Asset under management is also referred to as funds under management. There are certain firms and institutions and manage investments on behalf of clients, such firms include venture capital firms, brokerage firms, many management firms, mutual funds, banks, financial institutions, and individual portfolio managers.
How Does Assets Under Management Work?
Assets under management (AUM) measures the totality of investors funds held and managed by an investment company. There are several investment vehicles through which financial institutions and asset management firms hold investors cash, this includes hedge funds, mutual funds, exchange-traded funds and, others. A portfolio manager is often assigned to manage each investment vehicle. AUm calculates the size of a fund using the total amount of assets held by the fund. The rate at which investors contribute their assets to a fund determines the level of AUM. When more investors contribute In a fund, the AUM will increase and reverse will be the case when there is a decline in the number of investors that invest in a fund.
Calculating Assets Under Management
Asset under management is primarily calculated by adding up all the investments made by all investors, this includes individual investors and constitutional investors. Several companies also have different methods of calculating assets under management, but generally, it is calculated as the overall assets or funds managed by an investment company on behalf of clients.
Why Assets Under Management Matters
Asset under management is an important metric in the investment industry. Aside that it measures that overall assets or funds managed by an investment firm on behalf of clients, give insight to the state of the market and the performance of investments. For instance, an increase in AUM indicates that there is an increase in the performance of investments and many investors are encouraged to make an investment. A decline in the performance of investments also indicates a decrease in AUM. Generally, AUM gives an insight into the strength or weaknesses of a firm and help investors make decisions on what firm to invest in.
Assets Under Management as a Factor for Investment
Both new and old fund investors give significant consideration to AUM before making an investment decision. Products and firms with higher AUM have a high volume of investments, assets of funds with which they trade in the market while those with low AUM have otherwise. AUM helps to evaluate the strength and weaknesses if a company and investment. A proper understanding of AUM is important to investors, it helps them gain perspective of the overall market and have an idea of how investment product charge varying fees. The total asset management of investors determines the charges fund managers will charge for managing the investment. Also, investors consider a portfolio manager as capable when there is a higher investment inflow due to the outstanding market performance of the investment.
Academics Research on Assets Under Management AUM
- The right amount ofassets under management, Perold, A. F., & Salomon Jr, R. S. (1991). The right amount of assets under management.Financial Analysts Journal,47(3), 31-39.
- The optimal amount ofassets under managementin the mutual fund industry, Collins, S., & Mack, P. (1997). The optimal amount of assets under management in the mutual fund industry.Financial Analysts Journal,53(5), 67-73. Economies of scale for the mutual fund industry were estimated to determine the optimal amount of assets under management for a fund complex. Empirical results show that the optimal asset size for a multiproduct fund complex is between $20 billion and $40 billion and that the average fund complex could realize some efficiency gains by increasing its asset size. This finding suggests that in the near future, a fund complex with assets less than $20 billion may have difficulty surviving. A fund complex that offers just one kind of mutual fund could achieve economies of scale with far fewer assets under management but potentially could achieve additional cost efficiencies by adding new product lines.
- Voluntary turnover: knowledge managementfriend or foe?, Stovel, M., & Bontis, N. (2002). Voluntary turnover: knowledge managementfriend or foe?.Journal of intellectual Capital,3(3), 303-322. The onset of the knowledge era has affected all industries. Without exception, the Canadian financial services industry has transformed itself due to the knowledgeintensive structure it possesses. However, high competition and careerminded professionals have created a situation in which leading financial services firms are losing key human capital each day capital that can and will be used against them in the modern, fastpaced labour market. In the fight for the brightest senior executives, portfolio managers and fund administrators, human resource professionals must pay attention to the investments they are making in their employees through training and development, while monitoring reward and recognition programs, so that loss of intellectual capital is kept to a minimum. This study examines 19 Canadian financial service firms and their current human capital practices. Results show that while human resource managers are effectively managing the people in their organizations through training and development, performance reviews, and the effective management of fluctuating workforce demands. However, this study highlights the need for greater attention to be paid to the leveraging of human capital that exists within their knowledgeintensive workforce. Furthermore, research findings strongly suggest the need to increase knowledge management behaviours such as the valuation and codification of organizational knowledge assets.
- Pension fund management and investment performance, Tonks, I. (2006). Pension fund management and investment performance.The Oxford Handbook of Pensions And Retirement Income, Oxford ua, 456-480.
- Performance fees for investment management, Davanzo, L. E., & Nesbitt, S. L. (1987). Performance fees for investment management.Financial Analysts Journal,43(1), 14-20.