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.
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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.