The total market value of investments a person manages for clients is called assets under management (AUM). Depending on the person or company, AUM can be calculated in different ways.
Some people include bank deposits, mutual funds and cash under AUM, while others only include funds in which an investor assigns a person or company the authority to trade on their behalf. In commercial real estate, the former is more common. Some people also define AUM as the total funds managed for all clients, while others define AUM as the total funds managed for just one client.
In some instances, the investment manager might have certain requirements for the AUM. For instance, there may be a minimum amount required before investing in a piece of commercial property.
AUM is used to evaluate investments and management performance, with higher AUM indicating positive performance.
Example of Assets Under Management
If a commercial real estate investor puts $50,000 into a real estate limited partnership, those $50,000 become part of the total assets under management — or the pool of funds that a general partner (GP) is in charge of. The GP manages the funds, while the limited partners (LPs) are passive investors putting their money into the AUM real estate.
Understanding Assets Under Management
AUM calculations vary and fluctuate, depending on a number of circumstances, such as the influx of investor money, asset performance, market changes, and property appreciation or depreciation. In addition, when new assets are acquired, AUM increases.
Legally, all funds and investment firms in the US are required to register with the Securities and Exchange Commission (SEC).
Understanding and monitoring your AUM is important when coming up with investment strategies and determining the strength of your property and investment. Knowing your AUM also helps with general financial planning. Therefore, before making any major financial decisions, it’s essential to have a clear idea and understanding of your exact assets under management.