About the AUMC Calculator

This page provides a detailed guide to understanding the components and calculations behind our AUMC Calculator. Assets Under Management and Custody (AUMC) is a critical metric for financial institutions, representing the total market value of assets they manage and hold for clients. This calculator helps project the change in AUMC over a single period.

What This Calculator Does

The AUMC calculator models the growth or decline of an asset base by incorporating all major contributing factors. It provides a clear "waterfall" analysis showing how the starting AUMC transitions to the ending AUMC.

• Accounts for Flows: It adds new assets (inflows) and subtracts redemptions (outflows).
• Models Performance: It calculates the impact of market appreciation or depreciation on the asset base.
• Includes Income: It factors in dividends and interest, with an option to reinvest them.
• Calculates Fees: It computes both standard management fees (based on various calculation methods) and complex performance fees, considering high-water marks and hurdle rates.

When to Use It

This tool is designed for financial professionals and sophisticated investors who need to perform single-period financial projections. Common use cases include:

• Financial Advisors: Projecting a client's portfolio value for a future quarter or year.
• Asset Managers: Forecasting fund size and revenue for internal planning and reporting.
• Fund Accountants: Verifying fee calculations and changes in net asset value (NAV).
• Investors: Understanding the potential impact of fees and performance on their investments.

Inputs Explained

Each input field plays a specific role in the calculation. Accurate inputs are crucial for a meaningful result.

• Starting AUMC: The total market value of assets at the beginning of the period.
• Inflows & Outflows: Inflows are new client assets added, while outflows are assets withdrawn or redeemed. The difference is "Net Flows."
• Market Performance: The investment return on the asset base. This can be entered as a percentage (e.g., 5.5%) or a fixed currency value. The percentage is applied to the AUMC after accounting for net flows.
• Income: Earnings generated by the assets, such as dividends or interest. You can choose whether to reinvest this income, which adds it to the asset base before fees are calculated.
• Management Fee: The annual percentage charged for managing the assets. The fee is prorated based on the selected time period (Annually, Quarterly, Monthly).
• Management Fee Basis: Determines how the management fee is calculated:
  • End-of-Period: Fee is based on the AUMC value before fees are deducted.
  • Start-of-Period: Fee is based on the initial AUMC value.
  • Average: Fee is based on the average of the starting and pre-fee ending AUMC.
• Performance Fee (% of profits): An additional fee charged only on profits, common in hedge funds and alternative investments.
• High-Water Mark (HWM): The highest value the AUMC has ever reached. Performance fees are typically only charged on profits that exceed this previous peak.
• Hurdle Rate (Annual %): A minimum rate of return that must be achieved above the HWM before performance fees are applied.

Results Explained

The output provides a comprehensive summary of the AUMC changes:

• Ending AUMC: The final projected value of the assets after all contributions and deductions.
• Total Change: The absolute and percentage change from the starting AUMC to the ending AUMC.
• Contribution Analysis: A breakdown showing how each component contributed to the final result, including Starting AUMC, Net Flows, Market Change, Reinvested Income, and Total Fees.

Formula / Method

The calculator follows a logical sequence to determine the ending AUMC. The simplified core formula is:

Ending AUMC = Pre-Fee AUMC - Management Fee - Performance Fee

Where the components are calculated as follows:

1. Net Flows = Inflows - Outflows
2. Market Change = (Starting AUMC + Net Flows) * Market Performance %
3. Pre-Fee AUMC = Starting AUMC + Net Flows + Market Change + Reinvested Income
4. Management Fee = Fee Basis * (Annual Management Fee Rate / Periods per Year)
5. Profit Above Hurdle = MAX(0, [Pre-Fee AUMC - High-Water Mark] - [High-Water Mark * (Annual Hurdle Rate / Periods per Year)])
6. Performance Fee = Profit Above Hurdle * Performance Fee Rate

Step-by-Step Example

Let's calculate the quarterly AUMC for a fund with the following parameters:

• Starting AUMC: $1,000,000
• Inflows: $100,000
• Outflows: $50,000
• Market Performance: 2% for the quarter
• Management Fee: 1% annually, based on end-of-period AUMC
• Time Period: Quarterly (4 periods per year)

1. Calculate Net Flows: $100,000 - $50,000 = $50,000
2. Calculate Market Change: ($1,000,000 + $50,000) * 2% = $1,050,000 * 0.02 = $21,000
3. Calculate Pre-Fee AUMC: $1,000,000 + $50,000 + $21,000 = $1,071,000
4. Calculate Management Fee: The annual rate is 1%, so the quarterly rate is 1% / 4 = 0.25%.
   Fee = $1,071,000 * 0.25% = $2,677.50
5. Calculate Ending AUMC: $1,071,000 - $2,677.50 = $1,068,322.50

Tips + Common Errors

• Check Your Rates: Ensure that percentage inputs for fees and hurdle rates are entered as annual figures (e.g., enter "1.5" for 1.5%). The calculator prorates them automatically.
• Fee Basis Matters: The choice of management fee basis (start, end, or average) can significantly alter the fee amount, especially in volatile periods or with large flows.
• HWM and Flows: In practice, the interaction between a high-water mark and client flows can be complex (e.g., using equalization shares). This calculator uses a simplified model where the HWM is a single value for the entire fund.
• Zero vs. Blank: Leaving a field blank is treated as zero. Ensure this is the intended value.

Frequently Asked Questions (FAQs)

1. What is the difference between AUM and AUMC?

Assets Under Management (AUM) refers to assets where the firm has discretionary investment authority. Assets Under Custody (AUC) refers to assets the firm holds for safekeeping. AUMC combines both, providing a broader measure of a firm's scale.

2. How does the "Reinvest Income" option work?

If checked, any income (dividends, interest) is added to the asset base before fees are calculated. This means the income itself contributes to the base upon which management and performance fees may be charged. If unchecked, income is assumed to be distributed and does not affect the AUMC calculation.

3. Why is my performance fee zero even if the AUMC grew?

A performance fee will be zero if: (a) the Pre-Fee AUMC did not exceed the High-Water Mark, or (b) the profit above the HWM did not exceed the prorated hurdle amount.

4. Can I use this calculator for multi-period projections?

This tool is designed for a single period. For a multi-period projection, you would take the "Ending AUMC" from one period and use it as the "Starting AUMC" for the next, updating all other inputs accordingly.

5. What is a typical management fee basis?

This varies. Mutual funds often calculate fees daily and pay monthly based on average daily assets. Private funds and separate accounts more commonly use start-of-period or end-of-period values for quarterly calculations.

6. Why is the market performance percentage applied after net flows?

This is a standard convention that assumes flows happen at the beginning of the period, making them eligible to participate in the period's market performance. Other methodologies exist, but this is a common and straightforward approach.

7. What if my high-water mark is higher than my starting AUMC?

This is a common scenario after a period of poor performance, often called being "underwater." In this case, the fund must first recover all losses and surpass the old HWM before any new performance fees can be charged.

8. How is the hurdle rate prorated?

The calculator takes the annual hurdle rate you provide and divides it by the number of periods per year (1 for annually, 4 for quarterly, 12 for monthly) to find the period-specific hurdle rate for the calculation.

References

• Assets Under Management (AUM) Definition - Investopedia
• Private Equity Valuation: Fees and Carried Interest - CFA Institute
• High-Water Mark Definition - Investopedia
• Hurdle Rate Explained - Investopedia

Disclaimer

This calculator is intended for informational and educational purposes only. It should not be considered financial advice. The calculations are based on the inputs provided and rely on standard, simplified methodologies. Real-world fee structures and calculations can be more complex. Always consult with a qualified financial professional before making any investment decisions.