Assets Under Management(AUM): Impacts and Calculation
What Is Assets Under Management (AUM)
"Assets Under Management" (AUM) is an essential tool in the complex world of finance, where wealth management is king. It has a significant impact on investment strategies and financial decision-making. AUM, or total assets under management, is the foundational measure used to assess the size and performance of an investment business.
This blog discusses the subtleties of assets under management, how important it is to measure financial strength, how portfolio management works, and what it means for investors and financial professionals. In this blog, we will explore the halls of AUM, where numbers speak louder than words, offering deep insights into the world of finance and influencing the course of wealth management in a constantly changing economic landscape.
The AUM calculation method
The total value of assets under management by an asset management firm never remains constant. It changes depending on how much money has already been invested by existing investors and how many new investors there are. Another element is the returns a mutual fund produces. Companies use a variety of methods to determine the assets they are managing.
Positive returns boost the fund's overall investments, which attracts more investors and ultimately grows the amount of assets managed. When a fund produces poor returns, the company's asset volume declines. If shareholders sell their shares, the fund's value will decrease, resulting in a smaller AUM.
To support both short-term and long-term individual and communal portfolio growth, alternative asset managers must develop a deeper grasp of the effects of the crypto-sector AUM as blockchain technology spreads over the globe.
Other methods go beyond the fundamentals. Turning our focus here is especially important because AUM is frequently an important factor in determining company fees, with some utilising a fixed percentage factor related directly to it.
Impact of AUM on different sectors
The following four areas can have a significant impact.
1. Macro Sentiment
Possibly since 2018, the macro sentiment for cryptocurrencies has been at its lowest ebb. Too many cryptocurrency-based ventures and smaller blockchain-focused asset managers have run out of money, and as a result, many of them have had to close their doors. However, as Warren Buffett famously advised, "Be greedy when others are afraid." For individuals who can handle the short-term storms on their finances and emotions and have a mid to long-term perspective, such a concept might be wise.
Now can be a highly appealing time to start investing in cryptocurrency funds given the industry conflict. The agreement between BlackRock and Coinbase shows that institutions have already begun to offer access to cryptocurrency investing possibilities. To allow for a corresponding throttling of portfolio allocations, asset managers should continue to be alert to signs of crypto sentiment and maintain careful eyes on them.
2. Emerging Tech
Blockchain-as-a-service is the top-trending emerging technology that will help draw future investments in cryptocurrency (BaaS). BaaS, which functions as a third-party cloud hosting service allowing smaller organisations with limited IT resources to more quickly produce digital products utilising blockchain principles, has already been used by companies like Microsoft and Amazon.
According to TrustRadius.com, "Blockchain-as-a-service allows organisations to get apps up and running with the least amount of trouble, similar to software-as-a-service (SaaS). Higher agility and speedier adoption of blockchain are thus possible.
3. Patent Trends
The many application cases are a source of inspiration and ideas for those "in the know" as asset managers and other financial industry experts endeavour to educate themselves on crypto dynamics and the underlying blockchain technology. Only three blockchain patents were issued in 2016. According to research by Mathys & Squire, by early 2022, the number was getting close to 10,000, and applications are still flowing in. Bank of America and Capital One are included among the top 10, with IBM reportedly leading the pack with 345 blockchain patent filings.
The use of the category will increase as more banking and financial businesses validate crypto and blockchain use cases, which is quite encouraging for the expansion of crypto VC funds' AUM. Discovering and utilising patent trends can also promote a competitive edge known as the "first mover" advantage, which can be crucial for building crypto businesses and the people who invest in them.
4. Inflation Impacts
Cryptocurrency was once considered to be an inflation hedge, akin to gold, which is frequently referred to as an "alternative currency." Results in 2022 showed that assumption to be false, as crypto and other high-risk assets were destroyed.
On the other hand, with inflation at an all-time high and the Consumer Price Index at a 40-year high, investors are increasingly looking for unconventional strategies to provide risk-adjusted returns that beat inflation.
Crypto investment funds can take advantage of the pricing opportunity given the depths to which the crypto market has descended, which are likely to persist amid macroeconomic concerns, to build well-diversified portfolios to add stability and act as a deterrent to inflation when it is primarily brought on by factors like monetary expansion.
In reality, Bitcoin and Ethereum values fell 2.4% and 2%, respectively, the day after the Federal Reserve's July meeting minutes were published, noting inflation as still being "unacceptably high" and signalling continued hikes in interest rates.
Conclusion
We've shown through this investigation how AUM acts as a compass, directing investment strategies and mirroring the confidence that clients have placed in it. Every decision you make, whether you're a financial professional honing your techniques or an investor looking for assurance, is impacted by AUM.
A route forward where wise decisions result in long-term financial success is shown by accepting the complex nature of Assets Under Management. The tale of AUM endures, an ongoing tale of riches, confidence, and strategic vision as the financial scene changes.
