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Assets Under Management (AUM)

Related terms: asset management, asset allocation, diversification, liquidity, investment strategy

What is Assets Under Management (AUM)?

Assets Under Management (AUM) refers to the total market value of investments that a financial institution, investment manager, or family office actively manages on behalf of clients. AUM is a key metric in the wealth management industry, as it reflects the scale and influence of a firm’s investment operations. It encompasses various asset classes, including equities, fixed income, alternative investments, and private assets.

How AUM Works

AUM fluctuates based on investment performance, market movements, and client inflows or withdrawals. It is used to determine management fees, assess risk exposure, and compare the effectiveness of different asset managers. Some firms have full discretionary control over AUM, making investment decisions on behalf of clients, while others offer advisory services where the client retains control.

AUM vs. AUA: Key Differences

AUM is often compared to Assets Under Administration (AUA), but they serve different purposes:

  • Investment Authority: AUM managers actively invest and allocate capital, whereas AUA providers handle reporting and safekeeping.
  • Risk Responsibility: AUM involves taking on investment risk, while AUA focuses on administrative oversight.
  • Fee Structures: AUM-based fees are typically performance-driven, whereas AUA fees are often fixed or transaction-based.

Why AUM is Important for Family Offices

For family offices and ultra-high-net-worth individuals (UHNWIs), AUM reflects the scope of their investment portfolios and the degree of control they have over their assets. Key reasons why AUM matters include:

  • Investment Strategy & Control: Determines whether the family office manages investments internally or relies on external managers.
  • Performance Benchmarking: Helps measure investment performance against industry standards and peer institutions.
  • Risk Management: Provides insight into asset allocation, liquidity, and diversification strategies.
  • Fee Structures & Costs: Many asset managers charge fees based on AUM, making it a key factor in cost considerations.

Examples of AUM Management

Family offices and wealth management firms manage AUM in various ways:

  1. Discretionary Portfolio Management: The manager has full control over asset allocation and investment decisions.
  2. Advisory Portfolio Management: The manager provides recommendations, but the client retains final decision-making authority.
  3. Private Equity & Direct Investments: AUM may include stakes in private companies, venture capital, or real estate.
  4. Hedge Fund & Alternative Investments: Exposure to hedge funds, commodities, and structured products.

How AUM Affects Investment Fees

Many investment firms and family offices charge fees based on AUM. Common structures include:

  • Fixed Percentage Fees: A set annual fee based on AUM, typically ranging from 0.5% to 2%.
  • Performance-Based Fees: Additional fees based on returns exceeding a benchmark (common in hedge funds and private equity).
  • Tiered Fee Structures: Lower percentage fees as AUM increases, incentivising higher investment balances.

Further Reading & Resources

For more insights on AUM and investment management, explore these resources: