Assets Under Management (AUM)

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AUM is the total value of assets for which an investment adviser provides certain kinds of investment advice.

Assets under management (AUM) is popular metric within the investment industry, as well as in the decentralized digital asset (aka cryptocurrency) space as a measure of the size of, as well as the success of an investment management entity.[3] The AUM of an entity is often compared with historical data to express the amount (or lack) of growth. It is also often compared with the AUM of competitors with an increase in AUM evidence of positive performance (growth). However, investment strategies may be capacity constrained. This means that the strategy’s investment performance is adversely affected if it manages too much capital. Namely, its performance is adversely affected if its AUM exceeds the strategy’s capacity.[4] As a result, these funds may be closed to new investors and oversubscribed.[5] For such funds, AUM may not be an accurate metric of the fund’s success. For example, the SPDR S&P 500 index fund manages nearly US$400 billion in assets. It is not capacity constrained and it is still open to new investors. In contrast, Renaissance Technologies’ Medallion Fund has significantly outperformed the S&P 500 index since its inception. However, it manages fewer assets (reportedly about US$34.8 billion[6]) than the SPDR S&P 500 index fund because it is oversubscribed and closed to new investors.

Methods of calculating AUM can vary between firms or decentralized protocols. Investment management companies generally charge their clients fees as a proportion of assets under management, so assets under management, combined with the firm’s average fee rate, are the key factors indicating an investment management company’s top line revenue. The fee structure may depend on contracted arrangements between each client and the firm or fund. Decentralized protocols also use a variety of ways to incent growth of AUM, typically in the form of offering a return to those who serve the role of providing liquidity on the protocol.

Assets under management rise and fall. They may increase when investment performance is positive, or when new customers and new assets are brought into the firm. Rising AUM normally increases the fees which the firm generates. Conversely, AUM are reduced by negative investment performance, as well as redemptions or withdrawals, including fund closures, client defections and other generally adverse events. Lower AUM tend to result in lower fees generated.

From Wikipedia –

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