{"id":28979,"date":"2024-05-05T22:40:23","date_gmt":"2024-05-06T03:40:23","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=28979"},"modified":"2025-11-12T06:41:40","modified_gmt":"2025-11-12T11:41:40","slug":"assets-under-management-aum","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/financial-sponsors\/assets-under-management-aum\/","title":{"rendered":"Assets Under Management (AUM): Definition, Nuances, and Real-Life Usage"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Assets Under Management (AUM): Definition, Nuances, and Real-Life Usage<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-sponsors\/assets-under-management-aum\/#Why_Assets_Under_Management_is_Deceptive_for_Some_Firms\">Why Assets Under Management is Deceptive for Some Firms<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-sponsors\/assets-under-management-aum\/#Assets_Under_Management_AUM_vs_Net_Asset_Value_NAV\">Assets Under Management (AUM) vs. Net Asset Value (NAV)<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-sponsors\/assets-under-management-aum\/#How_to_Use_Assets_Under_Management_AUM_in_Real_Life\">How to Use Assets Under Management (AUM) in Real Life<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Assets Under Management (AUM) Definition:<\/strong> AUM represents the total market value of the capital managed by an investment fund on behalf of its clients; it&#8217;s a prevalent performance metric across many fund types, such as private equity firms, hedge funds, and venture capital (VC) firms.<\/p><\/blockquote>\n<p>Two primary factors influence the assets under management (AUM) for firms such as hedge funds that invest in <strong>liquid assets<\/strong>:<\/p>\n<ol>\n<li>The market performance of the fund.<\/li>\n<li>The inflows and outflows of capital into the fund.<\/li>\n<\/ol>\n<p>Positive returns on investments increase the AUM, while withdrawals by investors decrease it.<\/p>\n<p>For entities like private equity and VC firms, which hold <strong>illiquid assets<\/strong> (e.g., investments in startups and other private companies), AUM reflects the amount of capital they&#8217;ve successfully raised from their Limited Partners, such as pension funds, endowments, and funds of funds.<\/p>\n<p>Since these firms restrict the inflows and outflows after the capital is raised, the true market value of their investments isn\u2019t known until they sell them, which may take many years.<\/p>\n<p>This explains\u00a0why \u201cmarket performance\u201d does not factor into AUM for these firms in the same way.<\/p>\n<div class='code-block code-block-5' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/10\/21064319\/BIWS-Course-Directory-Page-Icon.png\" alt=\"BIWS Private Equity Funds of Funds and Secondaries Course\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master PE Fund Analysis, Waterfall Models, and LP- and GP-Led Secondaries<\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Understand the key PE fund concepts<\/h4>\n              <p>You\u2019ll get an introductory crash course that explains everything<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Learn fund-level modeling<\/h4>\n            <p>Build fund analyses, waterfalls, and portfolio company projections<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 6 case studies<\/h4>\n            <p>Learn the Excel analyses and how to recommend investments<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/private-equity-funds-of-funds\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/PE-FOF-Secondaries-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div>\n<\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"Why_Assets_Under_Management_is_Deceptive_for_Some_Firms\"><\/span>Why Assets Under Management is Deceptive for Some Firms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The stated AUM can sometimes be misleading for investment funds such as venture capital, growth equity, and private equity firms because these firms operate based on &#8220;commitments&#8221; from their Limited Partners (LPs).<\/p>\n<p>Essentially, LPs pledge a certain amount of capital to the firm, which can be drawn upon when needed for investments \u2013 but the LPs do <strong>not<\/strong> contribute this promised capital upfront.<\/p>\n<p>This system means that a firm&#8217;s declared AUM does <strong>not<\/strong> represent its &#8220;cash on hand.&#8221;<\/p>\n<p>For example, a firm with an AUM of &#8220;$1 billion&#8221; doesn&#8217;t have $1 billion sitting in a bank account ready to invest. Instead, that $1 billion number simply means that they&#8217;ve won commitments from\u00a0<em>their investors<\/em> to contribute a total of $1 billion in capital over the life of the fund.<\/p>\n<p>As this firm invests in companies, it will issue &#8220;capital calls&#8221; to its Limited Partners.<\/p>\n<p>As a simple example, let&#8217;s say that a Limited Partner such as a pension fund has agreed to invest $50 million in a private equity firm&#8217;s latest fund.<\/p>\n<p>This pension won&#8217;t contribute the $50 million upfront &#8211; instead, it might contribute $10 million in Year 1, $5 million in Year 2, $20 million in Year 3, $5 million in Year 4, and $10 million in Year 5.<\/p>\n<p>It contributes these amounts as the PE firm reviews deals and invests in companies over the years.<\/p>\n<p>Even though the private equity firm still counts this $50 million toward its assets under management, it only gets the funds in smaller portions each year as it invests.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Assets_Under_Management_AUM_vs_Net_Asset_Value_NAV\"><\/span>Assets Under Management (AUM) vs. Net Asset Value (NAV)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Net Asset Value (NAV) represents the total value of a fund&#8217;s assets minus its liabilities, and it&#8217;s another important metric for investment funds.<\/p>\n<p>For mutual funds and exchange-traded funds (ETFs), NAV is often listed on a per-share basis, offering investors a clear picture of the value represented by each share they own and how it compares to the current share price.<\/p>\n<p>For example, if the NAV per share is $5.00, but the current share price is $4.50, this could be a sign that the ETF is currently\u00a0<strong>undervalued<\/strong> since you can buy the shares for less than their intrinsic value.<\/p>\n<p>While AUM indicates the total market value of <strong>assets<\/strong> managed by a fund, NAV also accounts for the fund&#8217;s <strong>liabilities<\/strong> to provide a more comprehensive view of its net worth.<\/p>\n<p>The Net Asset Value represents capital actively &#8220;in play&#8221;: Funds held by the investment entity or already deployed in the market.<\/p>\n<p>On the other hand, AUM, especially for firms like private equity or venture capital, might include capital commitments not yet drawn from the Limited Partners, as noted above.<\/p>\n<p>Therefore, while AUM is more about \u201cpotential\u201d capital, NAV is closer to the firm\u2019s \u201cactual\u201d value after repayment of its obligations.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Use_Assets_Under_Management_AUM_in_Real_Life\"><\/span>How to Use Assets Under Management (AUM) in Real Life<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>AUM is mostly used for\u00a0<strong>benchmarking<\/strong> different funds, which explains why many private equity firms and alternative investment funds track AUM and AUM growth as key metrics.<\/p>\n<p>Here&#8217;s an example taken from this <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1411494\/000119312521080476\/d76760dex991.htm\" target=\"_blank\" rel=\"noopener\">investor presentation for Apollo\u2019s acquisition of Athene<\/a>:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28980 size-full\" title=\"Assets Under Management (AUM) - Key Metrics\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05222915\/AUM-Metrics.gif\" alt=\"Assets Under Management (AUM) - Key Metrics\" width=\"1093\" height=\"843\" \/><\/p>\n<p>Beyond just the growth rates, the\u00a0<strong>sources of AUM growth<\/strong> are very important.<\/p>\n<p><strong>Organic growth<\/strong> in AUM, resulting from superior investment returns, demonstrates good management and investment choices.<\/p>\n<p>On the other hand, growth primarily from\u00a0<strong>capital inflows <\/strong>might indicate effective marketing but doesn\u2019t necessarily mean the managers are skilled at generating returns.<\/p>\n<p>One application of AUM in valuation is the <strong>Enterprise Value to AUM multiple (TEV \/ AUM)<\/strong>.<\/p>\n<p>This ratio assigns a value to each $1.00 of assets managed by the fund; it&#8217;s similar to valuing a house on a $ per square foot basis.<\/p>\n<p>Essentially, it tells us how much investors are\u00a0willing to pay for the fund&#8217;s management of its assets.<\/p>\n<p>Higher-performing funds tend to have higher TEV \/ AUM multiples, while lower-performing funds tend to have lower TEV \/ AUM multiples.<\/p>\n<p>(Note that since Enterprise Value is always\u00a0<strong>much lower<\/strong> than AUM, this TEV \/ AUM multiple is normally expressed as a <strong>percentage<\/strong>, as in the example below.)<\/p>\n<p>You can see an example in <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1403528\/000119312519167310\/d743689dex99c21.htm\" target=\"_blank\" rel=\"noopener\">this Fairness Opinion from Sandler O&#8217;Neill for Brookfield&#8217;s acquisition of Oaktree Capital<\/a>, which uses TEV \/ AUM in the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/precedent-transaction-analysis\/\" target=\"_blank\" rel=\"noopener\">precedent transactions<\/a>:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28981 size-full\" title=\"Assets Under Management (AUM) as a Valuation Multiple\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05223817\/02-AUM-Valuation-Multiple.jpg\" alt=\"Assets Under Management (AUM) as a Valuation Multiple\" width=\"1394\" height=\"705\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05223817\/02-AUM-Valuation-Multiple.jpg 1394w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05223817\/02-AUM-Valuation-Multiple-300x152.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05223817\/02-AUM-Valuation-Multiple-1024x518.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/05223817\/02-AUM-Valuation-Multiple-768x388.jpg 768w\" sizes=\"(max-width: 1394px) 100vw, 1394px\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Assets Under Management (AUM) represents the total market value of the capital managed by an investment fund on behalf of its clients; it&#8217;s a prevalent performance metric across many fund types, such as private equity firms, hedge funds, and venture capital (VC) firms.<\/p>\n","protected":false},"featured_media":29363,"template":"","class_list":["post-28979","biws_kb","type-biws_kb","status-publish","has-post-thumbnail","hentry","kb_category-financial-sponsors"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/28979","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media\/29363"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=28979"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}