All You Know About Asset Under Management (AuM) & Liquidity
Asset under Management (AUM), portfolio liquidity and investor liquidity are critical yardsticks to measure the fund’s performance. Regulators require fund managers to disclose these information in their regulatory report in order to ensure more transparency in the market and to check market abuse. While AuM is the market value of assets managed by a fund manager, portfolio liquidity refers to how quickly an instrument can be converted into cash at fair value, and investor liquidity refers to how quickly the investors are able to redeem their holding from the fund.
Asset under Management (or AuM):
While regulators require the fund manager to compute and disclose AuM as part of regulatory reports, the manner in which they are calculated differs for each regulator. For example, there is a difference in how the AuM is calculated for Form Private Fund (or Form PF) regulation and Alternative Investment Fund Management Directive (or AIFMD) regulation.
Form PF requires the AuM to be calculated by taking the value of all the Assets and adding ‘Uncalled Capital’ to it. Whereas, AuM as per AIFMD follows the same approach as Form PF and in addition includes conversion of ‘Value of Position’ as per ‘Article 3, level 2 validation’.
| Regulatory AuM under Form PF | AuM under AIFMD |
| Value of all AssetsAdd: Uncalled Capital (if any) | Value of all AssetsAdd: Uncalled Capital (if any)Less: Actual value of positionAdd: Converted Value of position |
Since AIFMD regulation requires converted value of position, calculated AuM reflects more reliable and accurate information compared to Form PF.
AuM is used to answer Q32 & Q33 in AIFM 24 (1) template and Q48 for AIF 24 (1) template. Similarly Regulatory Assets under Management (or RAuM) has to be disclosed under Q3 of section 1(a) at aggregate level and Q8 of section 1(b) at individual fund level.
Portfolio Liquidity:
Portfolio liquidity depends upon the market depth of the instrument as well as the fund’s percentage of holding of the instrument on its total portfolio holdings. Different formulas are used to arrive at liquidity of the instrument held in the portfolio. Instruments can be divided based on Listed & Unlisted instruments, further breaking into equities, bonds, commodities and other derivatives.
| Market Depth of the instrument | % of holding on total portfolio | Liquidity impact | |
| Low | High | High | Less number of buyers since the market depth is low. Bid-Ask spread will be high resulting in sale of security at discount. Also, more time involved in unwinding the High holding. |
| High | High | Low | More number of buyers. High holding will not impact selling at a fair value. |
| High | Low | Low | Less holding percentage. Hence no impact selling at a fair value. |
| Low | Low | High | Less number of buyers. Bid-Ask spread will be high resulting in sale of security at discount. |
Portfolio liquidity is reported under Q178 to Q185 in AIF 24 (2) template for AIFMD and under Q32 in section 2(b) for Form POF.
Investor Liquidity:
Normally alternative investment schemes come with specific lock-in period, and funds may also impose “Gates” on their investors, to make sure the redemption pressure is limited or evenly spread. Typically any closed ended fund may have a minimum lock-in of 1 year to 3 Years, and “Gates” of 20%.
Investor liquidity is reported under Q186 to Q192 in AIF 24 (2) template and under Q50 in section 2 (b) for Form PF.
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FAQs
1. What is Asset under Management (AuM)?
Asset under Management (AuM) refers to the total market value of assets that a fund manager manages on behalf of investors. It is a key indicator of the size and performance of a fund.
2. How is AuM calculated under different regulations?
- Form PF: AuM is calculated by taking the value of all assets and adding ‘Uncalled Capital’.
- AIFMD: AuM calculation follows the same approach as Form PF, but also includes the converted value of positions as per ‘Article 3, level 2 validation’.
3. Why is there a difference in the calculation of AuM between Form PF and AIFMD?
The difference arises because AIFMD requires the inclusion of the converted value of positions, making the calculated AuM reflect more reliable and accurate information compared to Form PF.
4. Where is AuM reported in regulatory filings?
- AIFMD: AuM is reported in Q32 & Q33 of the AIFM 24(1) template and Q48 of the AIF 24(1) template.
- Form PF: Regulatory Assets under Management (RAuM) is disclosed in Q3 of section 1(a) at the aggregate level and Q8 of section 1(b) at the individual fund level.
5. What is portfolio liquidity?
Portfolio liquidity refers to how quickly an instrument within a portfolio can be converted into cash at its fair value. It depends on the market depth of the instrument and the percentage of the fund’s holding of the instrument relative to the total portfolio.
6. How is portfolio liquidity assessed?
Portfolio liquidity is assessed based on:
- The market depth of the instrument.
- The percentage of holding of the instrument in the total portfolio.
7. Where is portfolio liquidity reported in regulatory filings?
- AIFMD: Portfolio liquidity is reported under Q178 to Q185 in the AIF 24(2) template.
- Form PF: Portfolio liquidity is reported under Q32 in section 2(b).
8. What is investor liquidity?
Investor liquidity refers to the ability of investors to redeem their holdings from the fund. It is often subject to specific lock-in periods and may include mechanisms like “Gates” to manage redemption pressure.
9. What are typical lock-in periods and gates for alternative investment funds?
Closed-ended funds typically have a minimum lock-in period of 1 to 3 years and may impose “Gates” of around 20% to limit redemption pressure.
10. Where is investor liquidity reported in regulatory filings?
- AIFMD: Investor liquidity is reported under Q186 to Q192 in the AIF 24(2) template.
- Form PF: Investor liquidity is reported under Q50 in section 2(b).
11. How can DataTracks assist with regulatory reporting?
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12. How can I contact DataTracks for assistance?
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