Definition of Asset under Management
Asset under Management or AUM is the total value of assets that are held and managed by a financial institution or investment company on behalf of investors.
It shows how much of the investor’s money is controlled by the financial institution.
Big investors do not invest and control their money by themselves. Instead, they hire the services of brokers and investment management companies to invest on their behalf. Hence the total amount of investment which is under the control of the broker company is called Asset under management, AUM.
It is also known as Funds under Management FUM.
Brief Explanation of Asset under Management
The fund manager can invest investor’s money on his behalf without taking his permission. Similarly, he can sell and reinvest that money into other stocks without investor’s consent. The main aim behind is just always to increase investor’s profit and assets.
- AUM of the financial institution indicates the total amount of money managed by the institution.
- AUM of specific client indicates the total money of specific client managed by the institution.
- AUM of the company fluctuates. It may arise when the return on investment is positive i.e. good performance (investment made with excellent analysis and market research hence increase in profit.
- It rises when the client gains confidence in the fund manager’s capability and competency and he decides to invest more money or by new clients coming to the firm.
- Similarly, AUM decreases when the performance of the firm is not a good i.e. investment made does not earn enough return.
- With negative performance, current clients may withdraw their money and no chances of new clients. Hence results in low fee generation.
- The fee structure varies from client to client. It may be a percentage of profit earning or investments.
- Higher the AUM of the firm the success it is considered.
- Methods to calculate AUM varies from company to company.
- Asset under Management includes capital injected from investors and can also include investment from firm or funds Managers.