ASSETS UNDER MANAGEMENT:
A GUIDE

Assets under management (AUM) represents one of the most fundamental metrics in the investment world. Whether you’re evaluating fund managers, choosing investment vehicles, or building your own portfolio, understanding AUM can provide crucial insights into investment opportunities and risks.

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What Is Assets Under Management (AUM)?

Assets under management refers to the total market value of investments that a financial institution, fund manager, or individual manages on behalf of clients.

Think of AUM as a snapshot of all the money and securities under a manager’s control at any given moment. This figure includes everything from stocks and bonds to commodities and cash holdings.

The AUM metric serves multiple purposes in the financial industry. For fund managers, it represents the scale of their operations and often determines their compensation, as management fees typically range from 0.5% to 2% of total AUM.

For investors, AUM provides insight into a fund’s size, stability, and market influence. A fund managing £10 billion operates very differently from one managing £100 million, affecting everything from liquidity to investment strategies.

It’s important to note that AUM fluctuates daily based on market movements, investor deposits, and withdrawals. When the FTSE 100 rises by 2%, a UK equity fund’s AUM increases proportionally, even without new investor money flowing in.

Why AUM Matters to Investors

Understanding why AUM matters can significantly impact your investment decisions. The size of assets under management affects numerous aspects of fund performance and investor experience.

From a psychological perspective, larger AUM often instils greater confidence among investors. A fund with £5 billion in AUM has attracted thousands of investors who’ve conducted their due diligence. This “wisdom of crowds” effect can provide reassurance, though it shouldn’t be your only consideration. Additionally, larger funds typically have more resources for research, technology, and risk management systems.

The operational implications of AUM are equally significant. Funds with substantial assets benefit from economies of scale and can negotiate better trading terms, access exclusive investment opportunities, and maintain more diversified portfolios. However, size can also become a burden. A fund managing £20 billion might struggle to invest in smaller companies without moving market prices, potentially limiting returns.

How To Calculate Assets Under Management

Calculating AUM involves more than simply adding up account balances. The process requires accounting for various factors that affect the total value of managed assets.

The basic formula starts with the market value of all holdings. For a simple example, if a fund holds 1 million shares of Company A trading at £10 per share, plus £5 million in government bonds, and £2 million in cash, the AUM would be £17 million. However, real-world calculations become more complex when dealing with derivatives, foreign currency holdings, and illiquid investments.

Professional fund managers typically calculate AUM daily using sophisticated systems that track real-time market prices. They must account for:

• Market movements: Daily price changes in holdings
• Net flows: New investments minus redemptions
• Dividend reinvestments: Automatically reinvested income
• Currency fluctuations: For international holdings
• Fee deductions: Management and performance fees

Global Leaders in AUM: Who Manages the Most?

The landscape of global asset management continues to evolve, with several firms managing assets exceeding £1 trillion. Understanding who manages the most assets provides insight into industry trends and investment opportunities.

BlackRock leads the pack with approximately £7.5 trillion in AUM as of 2024, managing everything from index funds to alternative investments. Vanguard follows closely with £6.2 trillion, primarily through its low-cost index fund offerings. In the UK, Legal & General Investment Management manages over £1.2 trillion, making it one of Europe’s largest asset managers.

These giants didn’t achieve their scale overnight. They’ve grown through a combination of organic growth, strategic acquisitions, and innovative product development. For instance, the rise of ETFs has been instrumental in driving AUM growth for firms like BlackRock’s iShares division.

Factors That Influence AUM Growth and Decline

Multiple factors drive changes in AUM, and understanding these dynamics helps investors anticipate potential risks and opportunities.

Market performance remains the primary driver of AUM fluctuations. When equity markets rally, equity fund AUM naturally increases. During the 2020-2021 bull market, many funds saw their AUM grow by 30-50% purely from appreciation. Conversely, the 2022 market correction saw global AUM decline by approximately 15%, according to industry data.

Investor behaviour creates the second major influence. Net flows—the difference between new investments and redemptions—can dramatically impact AUM. Funds experiencing consistent outflows face a downward spiral: falling AUM leads to reduced resources, potentially worse performance, and further redemptions. Recent data shows UK investors pulled £2.5 billion from actively managed equity funds in 2023, while adding £8 billion to passive funds.

Regulatory changes also affect AUM trends. The EU’s Sustainable Finance Disclosure Regulation (SFDR) has driven billions into ESG-focused funds, while new pension freedoms in the UK have altered retirement savings patterns.

Using AUM to Evaluate Investment Opportunities

Savvy investors use AUM as one of several metrics when evaluating investment opportunities, but context is crucial for proper interpretation.

When assessing funds, consider AUM relative to strategy. A £50 million micro-cap fund might be ideally sized, while a £50 million global equity fund could lack the resources to compete effectively. Look for funds in the “sweet spot”—large enough to have institutional-quality operations but not so large that size hinders performance. For UK equity funds, this typically means £500 million to £5 billion in AUM.

Track AUM trends over time rather than focusing on absolute numbers. Consistent growth suggests investor confidence and good performance, while declining AUM might indicate problems. However, dig deeper—a fund might close to new investors to protect existing shareholders, artificially capping AUM growth.

Review fund reports and check whether flows align with performance. Strong performance with net outflows might signal marketing issues rather than investment problems.

Building Your Own AUM: Strategies for Success

For ambitious investors considering building their own AUM through platforms like eToro’s Popular Investor Programme, success requires strategic planning and disciplined execution.

Start by developing a clear, differentiated investment strategy. Whether you focus on UK small-caps, sustainable investing, or sector rotation, articulate your approach clearly. Potential followers need to understand your methodology and risk parameters. Document your process, share your reasoning for trades, and maintain consistency even during difficult periods.

Risk management becomes paramount when managing others’ money, even indirectly through copy trading. Establish clear position sizing rules, diversification guidelines, and maximum drawdown limits. Remember that followers often have different risk tolerances and investment horizons than you do. What seems like a temporary setback to you might trigger panic among followers.

Building trust requires transparency and communication. Regular updates about your portfolio thinking, market views, and performance help followers understand your approach. Address both successes and failures honestly. According to eToro data, Popular Investors who communicate regularly retain 40% more copiers than those who trade silently.

Final thoughts

AUM isn’t just about numbers or a fancy way to know big financial institutions. It’s an overview of a fund’s size and resources, which could determine its stability. However, AUM doesn’t equate to better returns because smaller funds may hold better opportunities.

While doing your research before investing, consider a company’s AUM alongside other metrics, such as market performance and strategy. Ultimately, consider a fund with enough financial muscle and market agility.

Visit the eToro Academy to learn about the different forms of fund investing.

FAQs

What’s the difference between AUM and NAV?

AUM represents the total value of all assets a manager oversees, while Net Asset Value (NAV) refers to the per-share value of a fund. NAV equals total assets minus liabilities, divided by shares outstanding. A fund might have £1 billion in AUM with a NAV of £10 per share if it has 100 million shares outstanding.

How often is AUM calculated and reported?

Most funds calculate AUM daily for internal purposes but report it publicly monthly or quarterly. Daily calculations help managers monitor capacity constraints and flow patterns. However, regulatory filings typically require quarterly AUM disclosure.

Does higher AUM mean better returns?

Historical data shows no consistent correlation between fund size and returns across all strategies. While larger AUM provides certain advantages, it can also constrain investment flexibility. Many successful funds have closed to new investors to prevent AUM from hindering performance.

Can AUM be manipulated or inflated?

While outright manipulation is rare due to regulatory oversight, some managers use aggressive marketing to temporarily boost AUM around reporting dates. Others might include committed but undeployed capital in AUM figures. Always verify how a manager calculates and reports AUM.

What’s a good AUM growth rate?

Sustainable AUM growth typically ranges from 10-20% annually for established managers. Higher growth rates might indicate either exceptional performance or aggressive asset gathering that could impact future returns. Consider growth sources: market appreciation, performance, or new investor flows.