Understanding Assets Under Management (AUM): Definition & Significance

Assets Under Management, or AUM, provides a good indication of the performance of financial institutions like fund managers, insurance groups, and other investment companies. Some companies use AUM simply to estimate the market value of the funds or assets that are under their management discretion. Others, include institutional money, bank deposits and mutual funds when coming up with the AUM figure.

Boosts Reputation of Financial Institutions

Large institutional clients usually look at AUM instead of revenues to determine the performance of financial service companies. AUM is also used to rate the ability of big financial institutions to attract new customers, and keep old ones. It can also provide insights to the gains and losses in the market value of the company’s assets. A dip in the ranking of a company, especially when it comes to keeping its clients, can pose a severe threat to their reputation. If many people are withdrawing their funds from a financial service company, new clients will have second thoughts about investing money in such an institution.

Determines Size of the Business

In business, many companies are taken over by bigger ones. In case of possible takeovers or acquisitions, the buyers will use AUM to help determine the size of the company being acquired. This will be vital in deciding takeover offer price.