What does FUM mean?
FUM stands for funds under management. The metric refers to the total amount of assets that a financial institution, such as a managed fund or investment management company, manages on behalf of its clients.
Why is FUM important?
FUM is helpful for investors and financial institutions because it reflects how much money different institutions are responsible for managing and investing.
It also indicates the size and scale of a financial institution's operations, which can influence its market position and reputation within the industry.
Depending on the financial institution, FUM can be important for investors in several ways.
Money management companies
For investors in a company that makes money by managing clients' money, FUM provides a key metric for assessing the company's financial performance and growth prospects. Investors in a money management company may track changes in FUM over time to evaluate the company's growth and expansion prospects.
A company successfully attracting new clients and generating positive investment returns will likely experience growth in its FUM, which can translate into higher revenue and profitability over time.
In addition, FUM can impact the valuation of a money management company. As the FUM of the company grows, its market value may increase as investors price in the expected growth and profitability of the company's operations.
For investors in a managed fund, FUM can indicate the size and scale of the financial institution operating the fund. FUM can also impact the performance of a managed fund.
As the size of the FUM grows, it can become more challenging for the fund manager to find suitable investment opportunities that align with its investment objectives. This can lead to a situation where the fund's returns are impacted by the sheer size of the assets under management.
Additionally, the fees charged by financial institutions for managing a fund are typically a percentage of the FUM, and investors may want to ensure that the fees charged are reasonable and in line with industry standards.
Investment management companies
For investors looking to become clients of an investment management company, FUM can provide insight into the company's experience, expertise, and track record in managing assets on behalf of its clients.
The FUM of the company can indicate its level of experience and expertise in managing assets, as well as the size and scale of its operations.
A company with a large FUM may be perceived as having greater expertise and resources to manage complex investment portfolios and navigate volatile market conditions. This can be particularly relevant for institutional clients such as pension funds and endowments, which typically have large asset bases and require sophisticated investment strategies.
Prospective clients may also consider the FUM of the company when evaluating its fees and expenses, which are typically a percentage of FUM.
How to interpret the metric
Interpreting FUM requires consideration of factors such as the size and scale of the relevant financial institution, its investment strategies and expertise, and the overall market conditions and investment landscape.
A larger FUM may indicate that a financial institution has a strong reputation and track record in managing assets on behalf of its clients. However, a larger FUM can also present challenges in finding suitable investment opportunities and managing risk effectively, particularly in volatile markets.
The investment strategies and expertise of financial institutions can influence their FUM. Some institutions may specialise in specific asset classes or investment styles, while others may have a more diversified approach.
Different asset classes perform differently in various market conditions. Investors and clients may want to ensure that the financial institution managing the FUM has a strategy well-suited to the current market environment.
What causes FUM to increase?
FUM can increase for several reasons, including:
New client inflows: One of the most common reasons for an increase in FUM is the addition of new clients entrusting their assets to the money management company. As new clients come on board, assets under management increase, which can lead to a rise in FUM.
Market appreciation: FUM can also increase due to market appreciation. As the value of the assets the money management company holds increases, so does its FUM. This can occur when stock prices rise, bond prices increase, or real estate prices appreciate, among other factors.
Investment performance: Investment performance can also impact FUM. If the money management company generates positive returns on investments, clients may be more likely to entrust additional assets to the company, which can lead to an increase in FUM.
Mergers and acquisitions: FUM can also increase through mergers and acquisitions. When one money management company acquires another, the FUM of the combined entity may increase as a result.
Strategic partnerships: Strategic partnerships can also lead to an increase in FUM. For example, if a money management company partners with a large bank or financial institution, it may attract additional assets under management, contributing to an increase in FUM.
What would spark a decrease?
Several situations could cause a decrease in FUM. These include:
Market downturns: If the value of the assets a financial institution manages declines due to a market downturn, the FUM will decrease. For example, if a mutual fund is managing a portfolio of stocks and the value of those stocks drops, the FUM of the mutual fund will decrease.
Client withdrawals: If clients decide to withdraw their money from the financial institution, the FUM will decrease. This can happen if clients need cash for unexpected expenses or if they choose to invest their money elsewhere.
Termination of contracts: If the financial institution loses a client or a contract is terminated, the FUM will decrease. This can happen if the financial institution fails to meet the expectations of its clients or if clients decide to switch to a competitor.
Poor investment performance: Clients may withdraw their money if the financial institution's investment strategies perform poorly. This can lead to a decrease in FUM.
What's the difference between assets and funds under management?
Both assets under management (AUM) and funds under management (FUM) measure the total value of assets a financial institution manages on behalf of its clients. However, there is a subtle difference between the two terms.
AUM refers to the total value of all the assets a financial institution manages, including those not in investment funds. For example, if a bank manages a client's cash deposits and investment portfolio, the total value of these assets would be considered AUM.
On the other hand, FUM specifically refers to the total value of assets managed within investment funds, such as mutual funds, exchange-traded funds (ETFs), or hedge funds. FUM excludes other assets the financial institution may manage, such as cash deposits or real estate holdings.
In summary, while AUM includes all assets a financial institution manages, FUM is a subset of AUM that only provides for the value of assets within investment funds.