How do you calculate regulatory AUM (RAUM) for Form ADV?

For a private fund adviser, regulatory assets under management are gross, not net, and include capital investors have committed but not yet paid in.

Julian R. Sterling · from The Private Fund Compliance Officer

Regulatory assets under management (RAUM) for a private fund adviser are the gross assets of each fund it manages, at fair value with no deduction for borrowings or other liabilities, plus every investor's uncalled capital commitment. On an illustrative adviser whose three vehicles have net asset value of 116.0 million, gross assets are 148.0 million and uncalled commitments 82.0 million, so RAUM is 230.0 million, 80.0 million above the 150 million private fund adviser exemption that the net figure appears to clear comfortably.

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RAUM is the number Form ADV asks for in Item 5.F, and the one that decides whether an adviser can stay an exempt reporting adviser, must register with the SEC, and must file Form PF. It is not the AUM in the pitch book, and it is not the NAV in the financial statements. The two errors a compliance officer sees most often are netting the subscription line against the assets and forgetting uncalled capital. Both make RAUM look smaller than it is, and both are easy to make in a firm whose finance team reports NAV every quarter.

The assumptions

An illustrative adviser to private funds only, US$ millions, at the date RAUM is measured.
Vehicle	Investments at fair value	Cash and other assets	Borrowings	Other liabilities	NAV	Uncalled commitments
Fund I	95.0	3.0	12.0	2.0	84.0	10.0
Fund II	38.0	3.0	18.0	0.0	23.0	72.0
Co-investment vehicle	9.0	0.0	0.0	0.0	9.0	0.0
Total	142.0	6.0	30.0	2.0	116.0	82.0

The borrowings are subscription facility drawings. Fund II is in its investment period, which is why most of its commitments are still uncalled. The adviser provides continuous and regular supervisory or management services to all three vehicles.

The calculation, step by step

Gross assets of each fund = investments at fair value + cash + other assets (no deduction for debt or accrued liabilities)

RAUM = Σ (gross assets + uncalled capital commitments) over every private fund advised

In Excel, one row per vehicle: =SUM(B2:C2)+G2, then total the column. Value the assets on the same basis the fund uses for its own reporting (fair value for private fund assets) and measure within 90 days before the Form ADV filing date. Do not subtract the subscription line, the fee payable or the carry accrual.

RAUM by vehicle, US$ millions.
Vehicle	NAV	Gross assets	Uncalled	RAUM
Fund I	84.0	98.0	10.0	108.0
Fund II	23.0	41.0	72.0	113.0
Co-investment vehicle	9.0	9.0	0.0	9.0
Total	116.0	148.0	82.0	230.0

The result

RAUM is 230.0 million, 1.98 times NAV. Fund II, the smaller fund by NAV at 23.0 million, contributes the larger share of RAUM at 113.0 million, almost all of it uncalled capital. On NAV the adviser looks 34.0 million below the 150 million threshold of the private fund adviser exemption; on gross assets alone it would be 2.0 million below it; on the correct measure it is 80.0 million above. An adviser in that position that has been relying on the exemption has to register: an exempt reporting adviser whose annual updating amendment shows private fund assets of 150 million or more generally has 90 days after that filing to apply. Once registered with private fund RAUM of at least 150 million, it also files Form PF.

The 150 million test for the private fund adviser exemption counts private fund assets managed from a place of business in the United States. A non-US adviser with US investors applies it differently. Confirm the scope with counsel before relying on the arithmetic.

What if: what moves RAUM, and what does not

Starting from RAUM of 230.0 million.
Event	Change	RAUM after
Capital call of 20.0 invested	0.0	230.0
Line drawn 10.0 and invested	10.0	240.0
Capital called to repay both lines, 30.0	-30.0	200.0
Exit proceeds distributed, 20.0	-20.0	210.0
Investments marked down 10 per cent, 14.2	-14.2	215.8

A capital call moves money from uncalled commitments to cash, so RAUM does not change. A subscription line drawing adds assets without using any commitment, so it raises RAUM until a call repays it. Distributions and markdowns reduce it. None of these takes the adviser below 150 million: the uncalled 82.0 million alone is more than half the threshold. The practical consequence is that RAUM for a fund manager in its investment period is driven by commitments, not performance, and a successful fundraise can cross the threshold before a single investment is made.

The common mistakes

Reporting NAV. Net assets of 116.0 million understate RAUM by 114.0 million here: 32.0 million of liabilities and 82.0 million of uncalled capital.
Netting the subscription line. The Part 1A instructions for Item 5.F (instruction 5.b) say not to deduct outstanding indebtedness or other accrued but unpaid liabilities. A fund that draws its line to bridge calls has higher RAUM for as long as the line is drawn.
Using a stale date. RAUM is measured within 90 days before filing. A quarter-end figure from five months earlier is out of time, and in a fundraising year it can be far from the current number.

Takeaway

Add gross assets and uncalled commitments, deduct nothing: 230.0 million here against a NAV of 116.0 million, which decides the registration question on its own. Recompute it before each Form ADV filing and whenever a close is expected. Performance figures in the same filing season raise their own questions, covered in net performance under the SEC Marketing Rule, and the free workbook and working documents for this book cover the fee, expense and testing side of the programme.

Questions readers ask

Do uncalled capital commitments count toward regulatory AUM?

Yes. For private funds, Form ADV's instructions include the amount of any uncalled capital commitments in regulatory assets under management. In the illustrative case they are 82.0 million of the 230.0 million total; Fund II, with NAV of 23.0 million, contributes 113.0 million of RAUM because 72.0 million of its commitments are still uncalled.

Is a subscription line deducted from regulatory AUM?

No. RAUM is computed gross, without deducting outstanding indebtedness or accrued liabilities. Drawing a line of 10.0 million and investing the proceeds raises the illustrative adviser's RAUM from 230.0 to 240.0 million, while calling 30.0 million of capital to repay both lines lowers it to 200.0 million.

Does a capital call change regulatory AUM?

Not by itself. A call converts uncalled commitments into cash, and both are counted, so a 20.0 million call leaves the illustrative RAUM at 230.0 million. RAUM falls when money leaves the fund, as with a 20.0 million distribution, or when assets are marked down, as with a 10 per cent markdown worth 14.2 million.

Read the whole case

This article is one calculation from The Private Fund Compliance Officer. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.

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