What Is Asset Under Management? A Guide for Allocators

When evaluating an asset manager, one of the first metrics you will encounter is their AUM, or Assets Under Management. It represents the total market value of all investments a firm manages on behalf of its clients, serving as a key indicator of the firm’s scale, market trust, and operational maturity.

For a professional allocator, AUM is more than a number—it’s a foundational data point that tells a much larger story about a manager's capabilities.

What Exactly is Asset Under Management?

At its core, AUM is the aggregate capital that investors—from retail individuals to large institutions—have entrusted to a manager. This figure is dynamic, fluctuating with market performance, new capital inflows, and client redemptions.

For allocators using platforms like Fensory, understanding the composition of a manager's AUM is a critical first step in the due diligence process.

AUM typically comprises:

• Discretionary Assets: This is the capital that managers can invest on behalf of clients without seeking approval for each transaction. It forms the core of most firms' reported AUM and is the truest measure of entrusted capital.

• Non-Discretionary Assets: For these assets, the manager acts in an advisory capacity, recommending trades that the client must approve.

• Capital from Diverse Clients: This includes assets from retail investors, high-net-worth individuals (HNWIs), family offices, and institutional entities like pension funds or endowments.

An Analogy: The Restaurant's Reputation

Imagine selecting a restaurant in an unfamiliar city. A reliable indicator of quality is its popularity. A restaurant with a long waiting list suggests that patrons trust the chef, value the experience, and believe the price is justified.

AUM functions similarly in the investment world. A manager with a high AUM is akin to that popular restaurant. It signals that they have earned significant market trust and have built the operational infrastructure required to manage substantial capital effectively. It serves as a powerful shorthand for reputation and scale.

AUM often acts as an initial filter for allocators. It provides a quick assessment of a manager's market acceptance, operational capacity, and ability to attract significant capital. While not the complete picture, it is an essential starting point for any analysis.

What AUM Reveals at a Glance

While AUM is just one piece of the puzzle, it offers a surprisingly rich snapshot of a firm's standing. The table below breaks down what this single metric can signify for an allocator.

Ultimately, a manager’s AUM is more than just a number; it’s a narrative. It tells a story about their growth, client relationships, and competitive position in the financial landscape.

How Asset Under Management Is Calculated

A firm’s Assets Under Management is not a static figure. It is a dynamic metric that constantly shifts with market performance and investor activity. It is driven by two primary forces: capital flows and asset appreciation or depreciation.

The Core AUM Formula

The calculation for AUM is straightforward in principle. A manager begins with their starting AUM, adds new capital from investors, subtracts capital withdrawn by clients, and then adjusts for investment gains or losses over the period.

A simplified formula is:

New AUM = Starting AUM + New Investments – Redemptions +/- Investment Gains/Losses

This equation illustrates how a manager's investment skill, market conditions, and client activity collectively determine the final AUM figure.

It is crucial to recognize that AUM growth is not solely dependent on attracting new clients. It also reflects a manager's ability to generate returns on the capital already under their stewardship.

For example, a digital asset fund begins a quarter with $500 million in AUM. It attracts $50 million in new capital while processing $20 million in redemptions. If its Bitcoin and stablecoin strategies generate $70 million in gains during that period, its new AUM would be $600 million.

Discretionary vs. Non-Discretionary Assets

For institutional allocators and family offices, the composition of AUM is as important as its total value. Not all assets are managed with the same degree of control.

• Discretionary AUM: This is the capital the manager can invest on the client’s behalf without requiring approval for individual trades. It is the ultimate signal of trust and represents the core of an asset management business.

• Non-Discretionary AUM: In this arrangement, the manager acts as an advisor. They can recommend transactions, but the client retains final approval authority. These assets are typically reported separately.

When conducting due diligence, always request a breakdown between discretionary and non-discretionary AUM. The discretionary figure provides the clearest view of the capital under the manager's direct strategic command.

Why AUM Is a Critical Metric for Investors

When evaluating an asset manager, Assets Under Management (AUM) is far more than a vanity metric. It is one of the first data points a professional allocator examines, serving as a rapid filter for stability, operational maturity, and market standing.

In short, AUM helps answer a fundamental question: has this firm earned the trust of its peers and clients?

A high AUM often indicates that a firm has the institutional-grade infrastructure required to manage significant capital securely. This extends beyond trading to encompass robust compliance frameworks, sophisticated risk management systems, and dedicated research teams—all essential for navigating complex markets like digital assets. Consequently, larger firms with substantial AUM often receive preferential access to exclusive investment opportunities.

The AUM Spectrum: High vs. Low

However, larger is not universally better. The size of a fund significantly influences its strategy and potential returns.

• High-AUM Firms: These are the "aircraft carriers" of the investment world, offering stability and a proven track record. Their scale provides access to resources and deals unavailable to smaller firms, making them a suitable choice for conservative institutional capital.

• Low-AUM Firms: These are the nimble "speedboats." Smaller managers can pivot quickly to capitalize on niche opportunities, which can lead to outsized growth. Their flexibility and specialization appeal to allocators seeking alpha in less efficient market segments.

AUM reflects a firm's strategy and scale. A large AUM can signal robust infrastructure and market trust, while a smaller AUM may indicate agility and untapped growth potential. The optimal choice depends entirely on an allocator's specific risk appetite and investment mandate.

This dynamic is reshaping the asset management industry, which is experiencing significant capital consolidation driven by fee compression and rising operational costs. In fact, nearly 45% of U.S. managers now oversee more than $5 billion in assets. To explore these shifts further, KPMG offers a great analysis of the asset management industry outlook.

How AUM Shapes Fees and Access

A manager’s AUM has a direct impact on fees. Since management fees are typically calculated as a percentage of total assets, a larger AUM base generates economies of scale.

A firm managing $10 billion can operate more efficiently on a per-dollar basis than a boutique firm managing $100 million. As a result, allocators committing significant capital can often negotiate tiered fee structures, where the percentage fee decreases as the investment size increases.

Understanding the relationship between AUM, operational capacity, and fee structures is a fundamental component of due diligence for any serious investor.

AUM in Crypto: Navigating a New Landscape

Applying traditional AUM analysis to the digital asset space requires a more nuanced approach. While the core concept of measuring managed assets remains, the unique characteristics of crypto introduce complexities that demand greater scrutiny from allocators.

The most significant challenge is extreme volatility. A sudden 10% intraday price movement in BTC can dramatically alter a fund's reported AUM, independent of capital flows or manager skill. This makes a single point-in-time AUM figure less meaningful than in traditional markets and compels allocators to focus on trends and operational integrity.

The Challenge of Transparency and Verification

Another complication is the fragmented nature of digital asset custody. A crypto manager's capital is rarely held in a single brokerage account; it is often distributed across centralized exchanges, qualified custodians, and decentralized finance (DeFi) protocols on multiple blockchains. While on-chain data offers unprecedented transparency, interpreting it correctly requires specialized tools and expertise.

For institutional allocators, this transforms due diligence into a forensic exercise. A reported AUM figure cannot be taken at face value. The central question becomes one of operational integrity: can the manager verifiably prove control over the assets they claim to manage?

In digital assets, AUM verification is paramount. Allocators must partner with managers who provide transparent, verifiable proof of holdings, often through third-party administrators, auditors, or on-chain "proof-of-reserves." Trust must be built where custody is a primary risk factor.

This requires asking more rigorous questions during the vetting process:

• Custody: Where are the assets held? Are they with a qualified custodian, secured in a multi-signature wallet, or deployed in a smart contract?

• Valuation: How are illiquid tokens or yield-bearing DeFi assets priced? Is the methodology consistent and defensible?

• Proof-of-Reserves: Can the manager provide independent, verifiable proof that their assets exceed liabilities?

Obtaining clear, satisfactory answers to these questions is non-negotiable for making an informed allocation decision in the digital asset space.

The Big Picture: Global AUM Trends and What They Mean

To properly interpret a firm's Assets Under Management, it is helpful to consider the broader context. The global asset management industry is a dynamic ecosystem shaped by market cycles, shifting investor sentiment, and deep structural changes. Understanding these macro trends provides the framework needed to evaluate a manager's long-term viability.

Driven by recovering markets and a persistent search for yield, the industry has expanded significantly, intensifying competition between established giants and nimble specialists.

A New Competitive Arena

Despite record-high assets, the industry faces significant headwinds. Profitability is being compressed by rising operational costs and relentless downward pressure on fees. This environment forces managers to innovate to maintain a competitive edge.

The firms succeeding today are those with a clear, defensible advantage. This may include:

• Proprietary Distribution Channels: Strong, established relationships that ensure a reliable pipeline for capital inflows.

• Multi-Asset Platforms: The capacity to offer clients a comprehensive suite of solutions, from traditional strategies to alternative and digital assets.

• Differentiated Products: Unique offerings, such as those emerging in the digital asset space, that address specific allocator needs.

This pressure is also fueling a convergence between traditional and alternative asset classes. As allocators seek new sources of return, the lines are blurring, leading to the rise of new structures like semi-liquid products and hybrid public-private portfolios.

According to recent analysis, global AUM is projected to reach $147 trillion, even as organic growth slows. This indicates that growth is not evenly distributed but is instead concentrating among firms that are successfully adapting to the new landscape. You can explore these asset management industry trends here.

For family offices and institutional investors, this trend highlights the need to look beyond a manager's current AUM. The critical question is whether they possess the strategic vision and operational resilience to navigate these shifts and continue to grow.

The AUM Questions Every Allocator Asks

When evaluating investment managers, certain key questions consistently arise regarding Assets Under Management. Obtaining clear answers is essential for using this metric effectively in any due diligence framework.

Here, we address the most common questions about AUM for both traditional and digital asset funds.

Is Bigger Always Better With AUM?

No. While a substantial AUM can signal stability, market trust, and institutional-grade infrastructure, it does not guarantee superior performance.

In some cases, a large AUM can be a constraint. A multi-billion-dollar fund may struggle to execute trades in less liquid markets, such as certain segments of crypto, without causing adverse price impact. This is where smaller, more agile funds can hold an advantage, capitalizing on niche opportunities that larger funds are too big to access efficiently.

A prudent approach is to view AUM as one data point among many. It should be assessed in conjunction with the fund's performance track record, investment strategy, risk management framework, and fee structure.

How Does a Fund’s AUM Impact My Fees?

A direct relationship exists between AUM and fees. Most managers charge a fee based on a percentage of assets. As a firm's AUM grows, it benefits from economies of scale, which can translate into more competitive fee structures for clients.

This is particularly relevant for institutional-scale capital deployment.

• Tiered Structures: Many large funds offer reduced percentage fees as an investment size increases.

• Negotiating Power: An allocator with a significant capital commitment has greater leverage to negotiate favorable terms.

A firm with a high AUM is not only a signal of success but can also be a more cost-effective partner for a large allocation, directly impacting net returns over time.

How Do I Actually Verify a Crypto Fund’s AUM?

Verifying AUM in digital assets is fundamentally different from traditional finance. Given the price volatility of assets like Bitcoin and the distributed nature of holdings across on-chain wallets and off-chain venues, self-reported numbers require independent validation.

While on-chain data provides a degree of transparency, it rarely tells the whole story. Therefore, professional allocators should only engage with managers who utilize credible, third-party verification.

Ensure the fund works with:

• Reputable Third-Party Administrators for accounting and reporting.

• Independent Auditors for regular reviews and formal attestations.

• Proof-of-Reserves Reports to provide verifiable confirmation of holdings.

These checks and balances are non-negotiable for building the trust required to confirm that a digital asset fund's stated AUM is accurate and reliable.

At Fensory, we simplify the complex world of digital asset investing. Our platform provides the data, discovery tools, and analytics that HNWIs, family offices, and institutional allocators need to perform institutional-grade due diligence on BTC and stablecoin investment products. Explore strategies and connect with managers on https://fensory.com.