An organization can possess different types of assets, including cash, building, machinery, equipment, documents, bonds, stocks, cryptocurrency, mutual funds, etc. Whether it's a piece of manufacturing equipment or a patent, an asset is anything that can increase sales, lower costs, or generate cash flow; and the process of organizing and managing the purchase, use, maintenance, replacement, and disposal of organizational assets is known as asset management.
Tracking and managing assets is crucial for any business, specifically startups as it helps generate data that allows you to ensure assets are being utilized effectively and gives you the power to review performance. It enables firms to manage their assets from multiple locations, organize the asset portfolio, and provide an opportunity for planning against financial, operational, and legal risk.
There are many software solutions to automate and streamline the tasks required to manage these different types of assets. For example, IT asset management software is used to manage digital assets like infrastructure hardware, including network devices, servers, and security technology; 3rd party infrastructure, such as cloud databases and software licenses; and company-owned personal devices, such as laptops or phones and IoT devices.
One of the most significant types of assets that financial companies require managing with high-end accuracy and security is AUM (Assets under Management), also known as funds under management. Notable and constant growth in the value of AUM is important for startups as an investor is likely to choose a financial company to manage its funds based on the value of its AUM. So, what exactly is AUM, and why should startups have detailed information about these types of assets?
In this article, we will discuss what assets under management means, how important it is for startups, along with some tips for creating a strategic asset management plan.
What is AUM?
The total market value of the assets or securities that wealth management companies, investors, banks or financial institutions manage for their clients are known as assets under management. In other terms, assets under management refer to all of a person's or organization's financial holdings. AUM can include the entire value of assets that a company oversees on behalf of all its clients.
For instance, if an investor invests $70,000 in a mutual fund, it becomes a part of the overall AUM or pool of funds for the financial organization holding them. The financial organization is free to use all of the invested funds to buy and sell shares to achieve investment goals without requesting additional special permits.
AUM is a popular metric within the investment and decentralized digital asset (cryptocurrency) industry as a measure of the size of and the success of an investment management entity. The AUM of an organization is frequently compared with historical data to articulate the amount or lack of growth. It is also compared with the AUM of competitors, and an increase in AUM is evidence of growth.
Precisely, AUM (Assets Under Management) is the total market value of investors' assets held by financial institutions. For example, an investor has invested in some stocks with a financial institution. The value of those stocks is AUM for that financial institution. This financial statistic is used by businesses, including financial brokers, depository institutions, and venture capitalists for showcasing their reputation and position in the market. Their main objective is to raise AUM, which is a typical success indicator.
Some financial organizations include cash, mutual funds, bank deposits, and cryptocurrencies into their AUM calculation. The funds that a financial institution manages on behalf of its clients may sometimes count as its own financial assets.
AUM is a major factor that is considered when assessing the financial health of businesses. It is frequently taken into account together with management experience and performance. Investors, however, often view bigger investment inflows and AUM comparisons as a sign of quality and management expertise.
The consideration of AUM for evaluating the success of an organization is gaining momentum, which is why businesses have lately been focusing on growing their overall asset value. Global Assets Under Management (AuM) are expected to nearly double in size by 2025, rising from US$111.2 trillion in 2020 to US$145.4 trillion in 2025, according to PwC.
Let us have a look at why it is important for startups to know about assets under management.
Importance of AUM for Startups
In simple terms, it is important for startups to learn about AUM as it will help attract investors to the firm. The idea of assets under management is crucial because it allows investors looking for a possible investment business to judge the reliability of the company's financial practices based on the AUM.
People are more likely to trust and invest with a company if its AUM is higher. Since total assets under management (AUM) are often connected with revenues, it can be a powerful performance metric for financial organizations.
Furthermore, banks or asset managers frequently rate themselves according to the value of the assets under their control. Financial organizations frequently evaluate market trends and benchmark their performance against their competitors using assets under management.
AUM may also be taken into account for calculating fees. There are predetermined percentages of assets under management that are charged as management fees for several investment products. Additionally, a lot of personal money managers and financial advisors bill their clients as a percentage of the overall assets they handle. This ratio often declines as AUM rises, allowing these financial experts to draw high-net-worth investors.
Further, funds and investment businesses must meet certain AUM standards to register with the Securities and Exchange Commission (SEC). In order to maintain the fairness and orderliness of the financial markets, the SEC is in charge of regulating them. Depending on various variables, including the firm's size and location, the SEC registration threshold might range from $25 million to $110 million in AUM.
Assets under management give data that aids in evaluating an institution's disclosure standards, allowing for reliable comparisons between a firm's performance history and the transparency of its investment manager. AUM can also be used by investors to estimate the total transaction costs they may have to pay. Assets under management assist investment firms in luring new clients and increasing their revenue.
Below are the types of assets under management that startups should know about.
Types of Assets Under Management
1. Personal AUM
This is the term used to describe the assets under management metric, where clients pay a charge depending on the entire amount of the assets they entrust an investment firm to handle on their behalf. The fees that fund managers often receive depend on the value of the funds they manage and the returns earned from those investments.
2. Regulatory AUM
All assets and securities that a firm handles are considered regulatory assets under management. This also applies to assets that are constantly supervised. Additionally, this can apply to assets for which fund management needs the client's consent before engaging in transactions or exchanges.
Why Do Investors Consider AUM Before Investing in Startups?
1. AUM indicates the size of a company
AUM can help investors get an indication of the size of a company's operations relative to its competitors. The higher the assets under management, the more the value of the firm managing those assets. People are more likely to trust and invest with a company if its AUM is higher.
2. AUM offers insights into strengths and weaknesses
AUM offers insight into the strength or weaknesses of a firm and helps investors make decisions on what firm to invest in. Because it typically results in more revenue and larger management compensation packages, an increased AUM is a sign of success. On the other hand, decreasing AUM can depict poor investment performance and can hold investors back from investing in a firm.
While understanding AUM, it is also important to know about NAV (Net Asset Value), as both of these terms are frequently used while evaluating investment opportunities. However, while investing, investors tend to prioritize the value of AUM rather than focusing on the NAV. Thus, below is a brief idea of how these terms differ from each other.
Net Asset Value Vs. Assets Under Management
Assets under management are used by professionals for two purposes.
The aggregate value of a fund's assets minus all of its obligations is known as NAV, or net asset value, and is frequently displayed on a per-share basis. The NAV reveals the price at which fund shares can be purchased and sold.
Whereas the value of the assets managed by a person or business, as opposed to a fund, is referred to as AUM. Unlike NAV, which is reported on a per-share basis, AUM refers to the entire value of the assets being managed. While NAV is expressed as a value per share, AUM is expressed as a total or net value.
How to Calculate Assets Under Management?
AUM is calculated differently by different organizations. A mutual fund will compute differently than a financial advisory firm, and some of these discrepancies are fundamental. Some are also based on personal preference. While some companies only include relevant capital from their executive investors, others take into account all investment capital when calculating AUM.
Regardless of the assets that fall inside the boundaries of a specific institution's AUM, several techniques can be used to calculate this metric. The simplest way to calculate AUM includes looking at a fund's investment profile. The investment profile of a company is likely to increase if it offers steady, positive returns to its investors.
AUM may include capital owned by investment company executives or may be restricted to all investor cash invested across all of the firm's products.
Although there are many different types of financial assets, they commonly include the following:
- Cash
- Bank deposits
- Cryptocurrency
- Certificates of Deposit
- Stocks
- Bonds
- Treasure Notes
- Swaps
- Banker's Acceptances
The value of the assets under management (AUM) change over time. Let us have a look at the factors that increase or decrease in the value of AUM.
Factors Impacting Increase in AUM Value
Assets under management are influenced by the inflow and outflow of investor capital from a certain fund, and as a result, they are subject to daily fluctuations. The AUM of a fund will also rise as a result of asset performance, capital growth, and reinvested dividends. For example, 10 investors invest $1000 in a fund that further invests in equity stocks and gains a return of 10%. The AUM of the fund will then be $1100. Additionally, when new clients and their assets are acquired, the overall firm assets under management may rise.
Fund inflows, the increasing market value of assets, reinvested dividends, and market volatility are some of the factors that increase the value of assets under management.
- Investments made in a fund increase the value of AUM.
- When the markets are performing well, the value of assets increases, and so does the AUM.
- When the dividends generated from the AUM are reinvested into the fund, the overall value of assets under management increases.
- By purchasing extra shares in the mutual fund, investors in mutual funds can increase the size of their investment, which will increase the AUM of the mutual fund as a whole.
- When a fund has volatile assets, the AUM would also be volatile and change constantly.
Factors Impacting Decrease in AUM Value
AUM value declines can be attributed to a number of factors, such as fund closures, other market conditions or poor investment performance. For example, 10 investors invest $1000 in a fund that invests in equity stocks and incurs a loss of 10%. The AUM of the fund will then be $900.
- Redemption or outflows from a fund decrease the value of AUM.
- The value of assets decreases when the market is in a downtrend, and so does the AUM.
- When the dividends generated from the assets are distributed back to the investors instead of reinvesting, the value of AUM decreases.
- By selling the shares in a fund, the size of the investment reduces, which ultimately decreases the value of AUM.
Other factors held equal for fluctuations in the value of assets under management include:
- In comparison to a fund with a very loyal and stable investor base, a fund with regular inflows and withdrawals will show greater fluctuation in its AUM.
- In comparison to a fund that invests in stable, low-volatility securities, a fund that invests in erratic securities would suffer bigger variations in AUM.
AUM volatility, however, may also be influenced by the liquidity of the owned securities or the frequency of mark-to-market transactions. For instance, unlike liquid assets, a highly illiquid investment may not trade as frequently, which could result in less of an influence on AUM. The value of AUM may not fluctuate as frequently with private investment as it does with listed security since private securities may not be marked-to-market frequently.
AUM can be a key performance indicator for a company owning it. Let’s dive into the details on this subject for better understanding.
AUM as a Success Indicator
The amount of the AUM is a gauge of the success of the business, regardless of whether we are dealing with asset managers, insurance companies, banks, or other financial institutions. This is due to the fact that it frequently correlates with other KPIs.
AUM being so critical for startups in terms of attracting new investors, it becomes important to keep these assets stable and secure. Let's have a look at various common assets under management challenges that startups face.
5 Common Challenges Startups Face While Handling Assets Under Management (AUM)
#1 Choosing the Right Assets
Maintaining a diversified portfolio is essential for startups when it comes to AUM. However, it is crucial to determine the right assets to manage according to the requirements of potential investors and the managing capacity of the firm. For instance, a company can choose a favorable blend and deal with some or all forms of assets, including government bonds, corporate bonds, stocks, cash, treasure notes, swaps, and bank deposits.
#2 Sharing Accurate AUM Information
The lack of information sharing can cause issues in attracting potential investors. Startups need to accurately update their data on assets under management by tracking their assets in real-time. This up-to-date information is crucial for investors to gauge the financial soundness of the organization.
#3 Rising Expectations of Investors
When the AUM of a firm is high, people are more likely to do business with it, especially if the value has grown over time. As it is seen as a measure of organizational success, the expectations of investors in relation to AUM are rising. The inflows and outflows of funds, amount of dividends paid, stability and liquidity of funds, and the value of securities are all scrutinized by investors before making an investment decision.
#4 Increasing Competition
With the rapid rise in the number of startups getting registered every year, it is crucial for firms to focus on the growth of their AUM value. Companies with a large AUM can assert that their clients trust their competence more than they do that of competitors with a lower AUM. Startups need to ensure that their AUM grows over time, as it significantly increases the firm’s visibility in the competitive market and brings in more investors.
#5 Missing the Updates
When it comes to managing AUM, it requires consistent monitoring to save the investors from incurring losses. A cloud-based remote monitoring and management software with asset monitoring features can help in keeping track of your firm’s AUM on a real-time basis, making proactive decisions, and ensuring that you yield maximum returns from it.
Apart from the above challenges, firms also face security threats while handling assets under management. As businesses deal with multiple assets and are liable to handle the data of their clients as well as investors, it is essential to take the necessary steps to ensure that the information related to AUM is kept confidential and secure. Below are some types of software that startups can use to ensure the security of their assets under management.
Different Types of Software That Can Help in Keeping AUM Secure
1. Network Security Software
All files, data, and confidential information may be kept secure and shielded from illegal access by users both inside and outside the network with the use of network security software. It is commonly utilized in workplaces, financial institutions, and other institutions with similar requirements.
2. IT Management Software
A robust IT management software can help businesses manage their IT assets, enormous databases, and complex IT networks. It guarantees that every system, network, and process used by a business is continuously watched over and managed, eliminating the challenge of keeping the data updated at all times.
3. Patch Management Software
Through the use of patch management software, businesses may eliminate any weak points in their networks and guarantee network security, compliance, system uptime, and feature upgrades. It oversees a variety of IT assets and the patch deployment life cycle, automating critical patch management operations as well as endpoint monitoring and approvals.
How Can AUM Help Startups in Attracting More Investors?
- AUM serves as a marketing tool for startups to stand out from their competitors.
- If the AUM is constantly increasing, it is seen as an indicator of success as it generally leads to higher revenue and compensation packages.
- When your firm’s AUM grows over time, it proves that the company has attracted more investors, grown its existing investors' funds, or both.
- AUM helps in building a steady market value of the firm and increases the overall credibility of the company, eventually attracting more investors and directly impacting the overall profitability of the company.
- An AUM fund that generates positive returns leads to an overall increase in investments made in the fund, further increasing the number of investors.
- With the help of AUM, potential investors can analyze the capital of the firm and make core investment decisions.
- Investors can determine which assets performed well and underperformed in the market using AUM information.
- Increase in fund inflows, reinvested dividends, and capital appreciation attracts more investors to the firm.
Now that you know how important AUM is for attracting more investors to your business, below are some latest marketing trends that will help you boost your assets under management.
5 Marketing Trends That Help Startups to Increase their AUM
#1 Content Marketing
With the use of content marketing, firms can provide relevant information to potential investors that can help guide their investment decisions. Leadership articles, long-form blogs, emails, newsletters, research reports, white papers, etc., can be used to curate the content investors are looking for. It will ultimately address common concerns of investors and reap rich rewards in terms of boosting AUM.
#2 Data and Analytics
The efforts that you put into content marketing will lead to the generation of enormous data. With the use of data analysis software, businesses can draw out engagement statistics from their constant stream of data. On the basis of this analysis, clients can be segmented according to their persona and behavior. It also helps in determining the business strategies to be implemented depending on the customer relationships and their loyalty to your business.
#3 User-Centric Marketing
User-centric marketing is mainly about providing your clients with the resources they need to effectively evaluate your offerings and make an investment decision. It is about converting your website into a resource that points potential and existing investors towards information that stands your firm out as a knowledgeable and trustworthy provider.
#4 Sync Sales and Marketing
There generally exists a divide between the sales and marketing teams, which can affect the ultimate goal of boosting AUM. More of marketing’s content and strategies should be shared with the sales team, and they should be prepared for one-on-one interactions with existing and prospective investors while focusing on developing messages that resonate with the investors.
#5 Interactive or Trigger-Based Marketing
Interactive marketing offers prospects a more engaging experience by combining information with other informative elements like videos. Digital questionnaires can also be created, which allows people to get financial information through a quiz. It can prove to be useful when paired with a lead capture form.
In a Nutshell
AUM can be a strong performance indicator for startups as well as established businesses to attract high-end investments. It determines the strength of a company and can help investors get an indication of the size of a company's operations as compared to its competitors. Thus, it is essential for startups to constantly monitor and scrutinize their Assets Under Management (AUM) to make the right decisions.
Also, you can go through this list of the top digital asset management software to select one that helps you follow a systematic approach towards your Assets Under Management (AUM) and achieve your predetermined business goals.
