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.