AUM functions as a gauge of a company’s achievements, revealing the extent of trust that investors have in their abilities. To make informed decisions and develop effective strategies, it’s crucial to uncover the underlying factors propelling AUM growth. Let’s explore these contributing elements and their significance.
Investment Results
Investors are always on the lookout for appealing returns that consider the associated risks. Consistently positive performance over time not only draws in new investors but also retains the loyalty of existing ones. A history of delivering reliable and competitive returns plays a crucial role in boosting AUM. This is because contented clients tend to increase their investments and recommend others to do the same.
Market Dynamics
When we’re in the midst of a bull market or enjoying a robust economy, investor confidence tends to run high, driving increased investments. However, when we encounter bear markets or economic downturns, AUM growth can hit a plateau or even dip. This could be because investors might opt to withdraw funds or adopt a more cautious approach. Managers who can face these challenging market conditions and still achieve their goals tend to have a better shot at attracting and retaining investors.
Take Abhay Bhutada, Poonawalla Fincorp‘s MD as an example. Their institution could have a substantial 35-40 percent growth in assets under management (AUM) in the coming future. In July 2023, their AUM stood at Rs 17,776 crore. Factors like low leverage, sufficient capital, and a vast market opportunity are the reasons they are sure of continuing to achieve massive growth.
Marketing and Expanding Reach
An intelligently crafted marketing campaign has the power to help set a firm apart and attract potential investors. Furthermore, establishing a distribution network and forming partnerships with financial institutions and advisors can open doors to more clients and give a boost to AUM growth.
The CEO & Founder of Lendingkart, Harshvardhan Lunia, emphasized on why it’s crucial to adapt to new changes. He said that their company’s leadership team has steered them toward growth and understands the importance of embracing change to uphold this momentum. This entails increasing assets under management (AUM), expanding their product offerings, and enhancing disbursements. To accomplish these objectives, they firmly believe that evolution is necessary and are actively encouraging their key personnel to undertake more challenges.
Client Care and Relationship Building
The art of maintaining strong client connections and delivering top-notch customer service is absolutely critical for the growth of AUM. Happy clients tend to increase their investments and refer others to the firm, contributing to organic growth. Here’s an example. In Q1FY24, Poonawalla Fincorp, under the guidance of its MD, Abhay Bhutada, had an AUM of ₹ 17,776 crore. Its QoQ stood at 10% and YoY was 41%. A major credit for this goes to their digital-led approach that focuses on their customers.
This could have also gone the other way. In other words, if an institution fails to satisfy their clients, they may take out their investments and cause the AUM to drop.
Reputation & Brand Image
The way a company is perceived and its brand image are crucial in drawing in investors. A solid reputation for honesty and a history of success fosters trust with clients and increases the likelihood that they will trust their assets to the company. On the other hand, scandals or adverse publicity can result in a decline in clients and impede the growth of AUM.
Conclusion
While investment performance remains a cornerstone, marketing strategies, client relationships, and brand reputation are equally crucial. The interaction of market circumstances, regulatory contexts, and macroeconomic forces also shapes the routes of AUM growth. Investment firms and fund managers must carefully evaluate and prioritize these different factors to formulate effective expansion strategies and thrive.