If We're Looking at AUM, Let's Also Look at LUM

Subscribe and get a FREE gift!

In This Issue of Condé Nast Portfolio

Home > Views > Blogs > Market Movers > If We're Looking at AUM, Let's Also Look at LUM

Your Name

Your Email Address *
Send a copy to me

Recipient's Email Address *

Separate multiple email addresses (max 20) with commas.

Subject *

Message

0/1500

Email Confirmation

Market Movers

by Felix Salmon

Main

Good and Bad Reasons to Worry About ... The Economics of Non-Judicial Forecl...

Dec 28 2007 3:30PM EST

As we learned from the WSJ last month, "assets under management" is not the most useful of metrics to use when judging the size of a hedge fund.

For example, bond fund Y2K said it had assets under management of $2 billion as recently as July. But after a tough summer, London-based parent Wharton Asset Management UK Ltd. said the fund actually had less than $100 million in investor capital, and that most of the rest had been borrowed.

If this is a problem, let me suggest a simple solution: that every fund reporting AUM should also report LUM, or liabilities under management. For a plain-vanilla long-only mutual fund, that should be easy: LUM will always be zero. But for funds with leverage, the combination of AUM and LUM should give a much clearer idea of exactly what kind of fund they're running than AUM does on its own, or even if the AUM figure is accompanied by some vague and ill-defined leverage ratio.

See more in