Navigating AuM in today’s regulatory environment

By: Caitlin Gibbons and Giles Smart

Many different factors affect how and by whom alternative investment management firms are regulated, making it tricky to comply. Assets under Management (AuM) is the prime example of this since it is key to determining a manager’s filing requirement frequency, yet the concept of how AuM should be calculated has diverged over the past decade, with each regulatory body providing a different definition.

The Security and Exchanges Commission (SEC) enforces Regulatory Assets under Management (RAuM), a metric to its Form ADV filing, to calculate gross (not net) AuM for regulatory purposes. The AIFMD Annex IV filing uses the same terminology but a different calculation method.

Calculating RAuM: Form PF

Determine if an account is a securities portfolio. To calculate, the SEC views cash and cash equivalents, foreign client accounts, and family/proprietary assets as securities.

  1. Is there continuous and regular management (based on contractual terms and/or on compensation)? To what extent is advice provided?
  2. Determine the value of assets. Advisors must report the current market value of the assets held in securities portfolios. However, if continuous services are provided for only a portion of the portfolio, then RAuM should be calculated for this portion only.

This is the key difference between RAuM/GAV for Form PF and AuM for CPO-PQR, which focuses on a commodity pool’s AuM.

Fund advisors must include all gross assets with no deductions for liabilities (debt/leverage). Uncalled capital commitments must also be counted, and the fund’s strategy is often ignored. This can lead to a seemingly large value for RAuM when compared to net assets, making RAuM an illustration of a fund’s overall capital market participation (representing all assets managed by a manager).

Calculating AuM: AIFMD

This is used to measure the total market value of all the financial assets managed by a financial institution on behalf of its clients. It is how much of an investor’s money an investment company controls (the size of a fund and investor capital at risk). It determines the scope and the frequency of AIFMD filings. The methodology involves gross assets + absolute liabilities + any converted exposure for derivatives.

  Form PF CPO-PQR AIFMD
Terminology RAuM & GAV AuM AuM
Methodology Gross assets (does not incorporate liabilities) Considers whether account is a securities portfolio Gross assets (does not incorporate liabilities) Focuses on commodity pools Gross assets + absolute liabilities + any converted exposure for derivatives

Fund managers must understand all the differences between each regulator’s definition of AuM and report accordingly. In turn, policymakers must correctly interpret these figures.

To learn how we can help you visit us at sscglobeop.com or email solution@sscinc.com.