Assets under Management

Anyone who wants to invest money doesn’t have to do it themselves. You can hand it over to a company that takes care of it and charges a fee for doing so. Such companies are called asset managers or fund companies. If you add up all the money that such a company is currently managing for its clients, you get the Assets under Management. The English term literally means “assets under management.” In German, the term is also simply rendered as “verwaltetes Vermögen” (managed assets).

Why the figure determines power and revenue

Most asset managers earn their money through a percentage fee. Common rates are roughly 0.1 to 1.5 percent of the assets under management per year. For a fund with one billion euros and a 0.5 percent fee, that amounts to five million euros in revenue per year. Revenue thus grows directly with AuM. This is why, for investors, journalists, and competitors, this metric is the quickest way to gauge a provider’s earning power.

Large AuM also mean influence. The world’s largest asset manager, BlackRock, holds more than ten trillion US dollars. With this money, it holds stakes in virtually every major publicly traded company. At shareholder meetings, it is therefore entitled to vote, for instance on executive pay or climate targets. Critics see this as a concentration of power in the hands of a few firms.

One important distinction: the money does not belong to the manager. It remains the property of the clients and is kept separate from the company’s own assets. AuM are therefore neither profit nor equity. Anyone who confuses AuM with revenue can easily be off by a factor of one hundred.

What makes up the total

AuM change for two entirely different reasons. First, through inflows and outflows of funds: clients deposit new money or withdraw some. Second, through market developments: if share prices rise, the value of the existing holdings rises too, without a single new client having been added. If the stock market falls by twenty percent, AuM shrink accordingly.

For this reason, reputable providers report both figures separately. Net inflows show whether a firm is actually winning clients. Pure AuM can rise even in a bad year for the company if markets simply perform well. Conversely, a very successful manager can report shrinking AuM during a stock market crash.

What exactly gets counted is not defined uniformly everywhere. Some firms only include money over which they have full discretionary authority. Others also count pure advisory mandates, where the client makes the decisions themselves. As a result, AuM figures from different providers can only be compared to a limited extent. It’s worth taking a look at the footnotes of the annual report.

AuM in headlines and in your own investing

In financial news, this metric comes up almost every time fund companies are discussed. Sentences like “the asset manager with 500 billion euros in AuM” serve as an indicator of size there, similar to the number of employees at an industrial company. It is also the key pricing factor in acquisitions. What’s effectively being bought is the client base along with its fee streams.

You also encounter this figure in your personal finances. Every fund, such as an ETF tracking the DAX, discloses its fund volume. That is nothing other than the AuM of that particular product. Very small funds under roughly 50 million euros are sometimes closed because they aren’t profitable for the company. Investors then have to reallocate their money, often at an inopportune time.

A common misconception is that high AuM automatically mean good investment results. They measure size and sales success, not quality. A very large fund can even be at a disadvantage, because it can hardly execute its own trades in the market without being noticed. For assessing an investment, costs, diversification, and long-term performance are more meaningful indicators.