What is Assets under management (AUM)?
The exciting world of trading is full of acronyms and words that can be opaque at first glance. ROI, ETF, EBITDA, SL, TP, ETP, FCA, RSI, MACD, OBV , etc. A real alphabet soup that is difficult to decipher on many occasions! Fortunately, articles like this come to the rescue to clarify concepts that are essential when it comes to understanding financial markets. Today we are going to shed light on one of the most relevant concepts that is not talked about too much: that of assets under management or AUM. Keep reading!
Definition of assets under management (AUM)
What is an asset? Assets under management (AUM) represent all the positions that a client has in a financial institution (bank, investment fund, hedge fund, etc.). They include the securities portfolios of these clients, their savings and investments. They can be discretionary management (the broker or the bank makes the investment decisions) or advisory management (the client has the last word in what is done with their money).
The simple definition of assets under management would be “third party capital controlled by a particular bank or broker” . eToro takes the definition of AUMs to the next level thanks to its great commitment to social trading and defines them as ” the total capitals in cash used to copy an investor or invest with a CopyPortfolio “.
Why are assets under management (AUM) important?
The size of assets under management is of paramount importance for banks and investment companies, which generally try to maximize it in order to demonstrate their success against competitors. Its fluctuation is also a key financial indicator. Assets under management are considered a measure of competitive success and consist of growth/decline due to both capital appreciation/losses and new capital inflows/outflows.
Brokers and banks often report assets under management when discussing the size of their business portfolio. Fund managers must adhere to specific rules on the number of assets under management. At eToro, AUMs are especially relevant because they play an important role in the Popular Investor asset management program in advancing through the tiers.
It should be noted that a high AUM value in a fund can be an indicator that the fund is doing well and the investor may consider investing in it. But beware, the AUM level should not be the only factor weighed when making the decision to invest in a particular fund. The list of expenses, fund administrators, returns from previous years, etc. are some additional factors that must be taken into account to maximize our chances of success.
Tips for Attracting Assets Under Management (AUM)
Did you know that eToro allows you to act as if you were the manager of your own investment fund? EToro’s Popular Investor program allows you to manage your own portfolio and receive payments when other traders copy your trades. There are several tiers to this innovative program, increasing as the number of assets under management increases. Here are some tips to improve your AUM, if you decide to set out to conquer this program.
- Professional presentation
- To attract more AUM, a good online presence is key: neat and professional-looking website, well-crafted eToro profile, frequent updates, quick response to any questions. All these aspects are essential to achieve it!
- Talk to the potential audience
- In a world as competitive as this, it is key to be known by our target audience to raise capital. To do this, it can be a great idea to design a website that clearly spells out what we offer in terms of asset management.
- Get involved in the community
- Interacting with the investment community is one of the best options to attract more AUM. For example, participating in the eToro feed can give you great exposure which in turn can translate into more assets under management.
- Using word of mouth
- It is undeniable that the digital plane is key in the world of investments, but it should not for that reason neglect the analog plane. Why not answer investment questions from friends and family? Who knows, they might decide to let you manage your assets!
- Post goals and objectives
- Providing this information to investors considering betting on you can have a positive impact on their AUM. Offering clear and realistic forecasts builds confidence among investors.
Funds with the highest amount of AUM
There are thousands of mutual funds around the world, but only a few shine brightly and capture multimillion-dollar sums of assets under management. Next, we review 7 of the great fund managers by AUM.
Blackrock is the largest fund management giant on the planet. It has nothing more and nothing less than 7.43 trillion dollars in AUM. Only Vanguard is close behind, albeit a trillion less. Leading institutions and private investors around the globe trust Blackrock to manage their assets. Its management knows no borders: it manages client assets in North America, South America, Europe, Asia, Australia, Africa, and the Middle East. For this, it has a staff of 13,000 professionals who work in offices located in more than 30 countries. Blackrock even has international subsidiaries, as is the case with Blackrock Mexico. Much of its success is also due to its commitment to technology, offering funds with optimized indexing and quantitative management.
The silver medal at the AUM level goes to the manager Vanguard, with its 6.2 billion dollars. It stands out for its wide range of low-cost funds, its indexed ETFs, and its financial advisory services. For all these reasons, it is one of the favorite options among both institutional investors and retail investors. In addition, it is a manager that is always committed to innovation. Its track record proves it: it was the first manager to launch an indexed fund that replicated the movements of the S&P 500 in a completely passive manner, with commissions never seen before.
It is the third-largest fund manager in the world. Four decades with a sustained growth of its AUM endorse its position in the classification. State Street boasts partnering with some of the world’s largest and most sophisticated financial intermediaries and investors to help them achieve their financial goals. It has $ 3.59 trillion in AUM.
Fidelity is one of the most popular fund managers on the planet. It raises passions especially in the United States, where it is common to have pension plans associated with its funds. It also stands out for its commitment to responsible investments: its funds are also governed by social, environmental, and corporate governance criteria. It has more than 32 million clients, manages the pension plans of more than 22,000 companies, and is trusted by more than 13,000 financial institutions. Without a doubt, one of the great management companies based in the United States. It has $ 2.46 trillion in AUM.
Many people only know Allianz for its insurance vertical, but the truth is that it is one of the global heavyweights in investment management. It has been managing AUM for more than a century, since 1890, and has a strong global presence that translates into offices in 24 locations in the United States, Europe, and Asia-Pacific. It is a manager that is also strongly committed to new technologies: it recently launched its first fund on companies in the AI industry. It has 2.26 trillion euros in AUM.
JP Morgan Chase
The famous US bank also has one of the largest fund managers in the world: JP Morgan Chase. It is one of the most popular fund managers in the United States, especially among pension funds thanks to its SmartRetirement selection (funds with a deadline that is set on the expected retirement date). It also stands out for its wide range of passively managed index funds and for being one of the fund managers that provide funds to some Spanish banks, such as Liberbank. It has $ 1.9 trillion in AUM.
With a distinctly European flavor, it is the leading asset manager in Europe and is among the top 10 worldwide. It is backed by more than 100 million retail, institutional, and business investors. It stands out for offering very attractive index funds, such as the MSCI World Index, which replicates the movement of the MSCI World stock index. It has 1,592 billion euros in AUM.
What is the NAV?
Before we finish, we want to briefly mention another important management indicator in this area: the net present value or NAV for its acronym in English. It is a financial indicator complementary to the AUM that offers us relevant information when choosing which fund or investment management to choose. It consists of the market value of a unit of a given investment fund. If we add the market value of all the shares of a fund and divide it by the number of total units of the fund we will obtain the NAV. This information will be very useful to us since a popular fund will have a higher NAV than a less popular one. Therefore, used in conjunction with the AUM level, we can get a good X-ray of the health of a given investment fund.
In conclusion, having a good understanding of what assets under management or AUM are can be of great help, whether we want to invest in a fund or if we want to manage assets ourselves thanks to platforms such as eToro. Understanding that AUMs help us measure the reliability of investment is useful both ways. If we want to invest, we should know what a more or less high level of AUM implies. And if we want to offer our services so that other traders copy us, we are also interested in knowing well why it is important to achieve a high AUM and how we can increase it. We should be very familiar with this term. We hope this article has made your task easier.