Assets under management (AUM) is a term used by a bank, hedge fund, or private equity to measure the size of its portfolio. Fund managers may also use AUM to calculate management fees, performance fees, and use it as marketing tool to demonstrate to prospective investors how much capital they manage for their clients.
AUM Calculation for Hedge Funds
AUM can be calculated in various ways. Some hedge fund managers use the fund’s net asset value (NAV), which comprises the subscriptions from limited partners, the current return on investment (ROI), and reduced by the fund’s fees and other expenses. Other fund managers calculate the AUM based solely on subscriptions to the fund.
Example of AUM Calculation Using Subscriptions
In 2020, Hedge Fund C launched a fund and raised $25,000,000 from various limited partners. In year 1, Hedge Fund C earned a return on investment (ROI) of 7.5% and made no redemptions or distributions to limited partners. Total management fees and expenses were $525,000, and the fund’s NAV as of December 31, 2020, was $26,350,000. The fund states its AUM is $25,000,000, which is the total subscriptions to the fund. It does not factor in the ROI or fees.
Example of AUM Calculation Using the NAV
In 2022, Hedge Fund A launched a fund and raised $50,000,000 from various limited partners. In year 1, Hedge Fund C earned a return on investment (ROI) of 12.50% and made no redemptions or distributions to limited partners. Total management fees and expenses were $1,600,000, and the fund’s NAV as of December 31, 2022, was $54,650,000. The fund’s AUM as of December 31, 2022, is the NAV of $54,650,000.