ARK Global, LLC. Access + Research + Knowledge

My AUM Is Bigger Than Your AUM

As marketing consultants and sales professionals, we meet lots of managers. In every case AUM growth is the ultimate goal. Of course, this stands to reason as assets under management generally begets more assets under management; AUM ensures a firm it’s longevity and AUM growth is what marketing and sales professionals are hired to achieve. However, we are struck by the lack of truth in advertising that is often part and parcel to a conversation about AUM successes and failures. For managers, this data is readily available through public means, however for marketers the history of AUM flows is more difficult to gain a clear understanding of. For marketers, the age old question “how much have you raised?” will bring a wide variety of answers, from the overly aggressive ‘let’s include everything but the kitchen sink answer’ to the carefully choreographed exact count of assets on the books right now. In either case the information is pointless. It has no context. If a marketing firm is reputable, has a team and structure, it surely has also had AUM successes and failures. There are so many variables that impact how AUM grows, and how it disappears. The question is always asked too homogeneously by managers and research professionals alike, without regard for the circumstances that can both drive, and make up, an AUM figure. Here are some important factors that managers should consider when discussing AUM growth–both achieved and targeted:

  1. How diversified should this AUM growth be? In other words, if a firm raises $1B but it is from 2 accounts is that a good mix? Would $500M raised across 20 accounts be a better win?
  2. What are the fee considerations? If the firm can get 1/2 the assets but at double the fees is that better, or worse, than lots of low fee business held by 1 or 2 major investors?
  3. What was the product structure, or is the product structure, related to the AUM in question? What does $100M in LP assets look like on a net revenue and longevity basis when compared to $500M in a liquid mutual fund?
  4. What is the asset class? Clearly bond allocations will drive different AUM levels (and fees) than niche alternatives, for example. The economics can be very similar, even stronger with significantly less AUM–the comparison is not apples to apples.
  5. What are the current market dynamics? In other words, factors that impacted a momentum based AUM surge for a competitor years ago might not be rationale in the current market. On the contrary, a new opportunity embraced by the market for which there are very few competitors can have a much better future upside than a peer entering a well established market.
  6. What compromises is the the manager willing/not willing to take? I.E. will they walk away from assets if the fees/structure/liquidity needs are not ‘right’?

Managers and marketers must discuss and define AUM targets. It is part of a healthy dialogue about the process and feeds into capacity considerations. However, just like investment management performance, past results are not indicative of future returns. At the end of the day, AUM, like many other things in life, is hard won and requires a long term and consistent effort by a team of professionals all working together on behalf of a common goal.