The ‘Assets under Management (AuM)’ conundrum

The measurement of ‘assets under management’ or ‘funds under management’ in recent years has been a topic of confusion because of the multiple definitions under different rules and references. The industry practice to measure AuM as the net asset value of a fund over the years was overruled with the introduction of Alternative Investment Fund Managers’ Directive (AIFMD) where the AuM is to be measured on a gross basis.

Valuation of ‘assets under management’ under the AIFMD

Under Article 2 of the AIFMD, an AIFM should identify for each managed AIF, the portfolio of assets and including all assets acquired through use of leverage (derivative positions at their absolute respective notional value in accordance with Annex II of the AIFMD) and ‘aggregate’ the determined values of assets under management for all AIFs managed. This valuation methodology forms the basis for the measurement of leverage under the gross and commitment method and is reported within the Annex IV returns.

However, it is important to note that when a Firm is calculating its capital adequacy requirement under the AIFMD framework (IPRU-INV 11) it can make adjustments to the calculation that will likely reduce the ‘funds under management’ requirement. Specifically, under IPRU-INV 11.3 the funds managed by the Firm should be calculated as the sum of the absolute value of all assets managed, including assets acquired through the use of leverage, however for such purpose's derivative instruments shall be valued at their market value. This can substantially reduce the ‘funds under management’ requirement for AIFMs whereby leverage is being employed through the use of derivative instruments. 

Valuation of ‘assets under management’ under the MIFID

Firms that manage or provide advice (on-going basis) on assets under their MIFID permissions are subject to the K-AUM (MIFIDPRU 4.7). The calculation incorporates AuM data measured over the last 15 month ends. When measuring the K-AUM value, a Firm must use the market value of the relevant assets and offset any negative values (including short positions) meaning the measurement should be closely aligned to the net asset value of the relevant portfolio. This will effectively be the ‘net asset value’ of the portfolio. 

Further, all MIFID Investment firms including CPMs and CPMIs are required to report the total value of funds under management on a semi-annual basis for the purposes of the FSA038 (Volumes and Type of business) return. 

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