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Why do some funds’ AUM surge while others are shut down due to capacity constraints?
In the financial market, "Assets Under Management" (AUM) is an extremely important indicator used to measure the size and success of investment management entities. The increase or decrease in AUM not only reflects the performance of the fund, but also reveals the market demand for different funds. However, not all funds can continue to grow their AUM, and some funds have been forced to close their doors to new investors due to capacity constraints.
AUM is often used to compare the growth and competitiveness of different funds, and this number may fluctuate as market conditions and investment performance change.
The relationship between AUM and investment strategy
Changes in AUM are often related to the fund's investment strategy. Some strategies have limitations on the size of funds they can manage, and this capacity limitation may affect the fund's investment performance. For example, some hedge funds or actively managed funds may not be able to invest effectively in the market when they manage too much money, causing their returns to be lower than market benchmarks. In this case, these funds may choose not to accept new capital in order to protect the interests of existing investors.
Once a fund's AUM exceeds its capacity limit, it may lead to a decline in capital efficiency, which is a situation that fund managers do not want to see.
Examples of successful funds
Take the SPDR S&P 500 Index Fund, which has nearly $400 billion in assets under management and remains open to new investors because of its liquidity and scale. However, on the other hand, although the Medallion Fund under Renaissance Technologies has performed well and has significantly surpassed the S&P 500 Index since its inception, it has closed its doors due to excessive funding applications and only manages approximately US$34.8 billion in assets.
This tells us that the growth of AUM is not just an increase in numbers, but there may be many complex strategic considerations hidden behind it.
Diversity of AUM calculations
Different institutions may have different calculation methods for AUM. Some institutions count bank deposits, mutual funds, and cash as AUM, while others only count funds authorized by the client. This difference in definitions may affect investors' judgments about a fund's size and performance.
Therefore, understanding how to calculate the AUM of the fund you invest in is basic knowledge that every investor should have.
The difference between net asset value (NAV) and AUM
Net Asset Value (NAV) and AUM are often confused. NAV is the total asset value of a fund minus all liabilities, usually expressed per share; while AUM refers to the total value of assets under management of an institution. This means that NAV focuses on the value of each share held, while AUM reflects the overall asset management status.
Future trends in money management
Given the ongoing changes in global capital markets, AUM will continue to face challenges and opportunities. With the advancement of technology, especially the rise of decentralized finance (DeFi), different investment models have begun to emerge, which may also change the growth pattern of AUM in the future. Through smart contracts and automated management, future capital flow and management may become a new market trend, attracting a wider range of participants.
This means that successful investment management companies must constantly adapt to market changes and flexibly adjust their strategies to meet future challenges.
Ultimately, for investors, understanding a fund's AUM and its implicit strategy constraints is key to making informed investment decisions. In a capital-abundant market, how can you gain insight into changes in AUM when selecting a fund and measure how it affects your investment portfolio?
