AUM serves as a barometer of a company’s success, indicating the level of trust investors have in their capabilities. However, understanding the underlying factors that contribute to AUM growth is essential to make informed decisions and devise effective strategies. In this blog, we will delve into the various factors that influence AUM growth and their significance.
Investment Performance
Investors are consistently seeking attractive risk-adjusted returns, and positive performance over time attracts new investors while retaining existing ones. A track record of generating consistent and competitive returns can significantly contribute to the growth of AUM, as satisfied clients tend to invest more and refer others.
Market Conditions
During bull markets and favorable economic conditions, investor confidence is high, leading to increased investment inflows. Conversely, during bear markets or economic downturns, AUM growth may stagnate or even decline as investors may withdraw funds or adopt a wait-and-see approach. Skilled managers who can navigate challenging market conditions and still deliver positive results are more likely to attract and retain investors.
According to Abhay Bhutada MD, Poonawalla Fincorp has projected a substantial 35-40 percent growth in assets under management (AUM). Currently, their AUM stands at Rs 17,776 crore as of July 2023. They are confident of achieving a sizeable growth due to factors such as sufficient capital, low leverage, and a vast market opportunity in their segment.
Marketing & Distribution
A well-crafted marketing campaign can attract the attention of potential investors and showcase a firm’s unique value proposition. Additionally, having a strong distribution network and partnerships with financial advisors or institutions can provide access to a broader client base and bolster AUM growth.
Harshvardhan Lunia, CEO & Founder of Lendingkart, remarked on the realignment, stating that their leadership team has successfully guided the company towards growth. To sustain this progress, they recognize the importance of embracing change. This involves expanding their product portfolio, increasing their assets under management (AUM), and enhancing disbursements, all while maintaining profitability. To accomplish these objectives, they are convinced that further evolution is necessary, and they are encouraging their key personnel to take on more significant challenges.
Client Servicing & Relationship Management
Maintaining strong client relationships and providing excellent customer service is integral to AUM’s growth. Satisfied clients are more likely to increase their investments and recommend the firm to others, contributing to organic growth. If we take the example of Poonawalla Fincorp Ltd, under the guidance of Abhay Bhutada, in Q1FY24, due to their digital-led customer-centric approach, the company’s AUM stands at ₹ 17,776 crore and is up 41% YoY and 10% QoQ. On the other hand, dissatisfied clients may withdraw their investments, negatively impacting AUM.
Reputation & Brand Image
A firm’s reputation and brand image play a pivotal role in attracting investors. A strong reputation for integrity, transparency, and a successful track record builds trust with clients, making them more likely to entrust their assets to the firm. Conversely, negative publicity or scandals can lead to a loss of clients and hinder AUM growth.
Conclusion
While investment performance remains a cornerstone, marketing strategies, client relationships, and brand reputation are equally crucial. The interplay between market conditions, regulatory environment, and macroeconomic factors also shape AUM growth trajectories. Investment firms and fund managers must carefully evaluate and prioritize these different factors to formulate effective growth strategies and thrive in an ever-changing financial landscape.
