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

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


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