A Closer Look at "RAUM" for Registered Investment Advisers

Gary S. Kaminsky of Rothstein Kass

As a result of the enactment of the Dodd-Frank Act, investment advisers with at least $150 million in the newly coined term Regulatory Assets Under Management (RAUM) are faced with mandatory registration with the U.S. Securities and Exchange Commission (SEC) and a new universe of regulatory compliance requirements, most notably Form PF. Form PF has quickly become one of the biggest areas of concern for Registered Investment Advisers (RIAs) with at least $150 million in RAUM attributable to private funds. This article focuses on the challenging exercise that firms face in calculating their RAUM.

In the updated Form ADV, disclosure of the RIA's RAUM is required and determines the extent to which new regulations apply to the RIA. While the instructions to ADV provide some guidance for determining this number (see Part 1A, Instruction 5b of Form ADV), this new regulatory metric is not quite as simple as "gross assets" definitions that are casually used by many within the industry. Given that an RIA's filing obligation under Form PF is determined exclusively by the RAUM calculation, and with filing deadlines rapidly approaching, understanding the "rules of the road" and the various complexities of RAUM is essential to effective compliance with Form PF.


A widely-used metric for investment advisers has always been Assets Under Management (AUM), or the aggregated net asset value of client accounts managed by an investment adviser. The calculation of RAUM is sharply different than the calculation of AUM. Delving into each and every complexity involved in properly calculating RAUM is outside the scope of this article. Here we seek to identify industry-wide complexities and illustrate how important it is for RIAs to develop value-added resources and straight-through processes, both internally and externally, to facilitate their ability to calculate RAUM on a periodic basis as required by SEC regulations.


In its responses to Frequently Asked Questions (FAQ) on Form ADV (see responses to Form ADV: Item 7.B), the SEC advises that RIAs may rely on "gross assets as reflected on the balance sheet" for calculating RAUM. The SEC also indicated in its response that balance sheet assessments should be made in a manner "consistent with the applicable accounting standard" (in most cases for U.S. fund managers, the applicable standard is U.S. generally accepted accounting principles [U.S. GAAP]). The challenge here is that most firms produce GAAP balance sheets only once a year during the annual audit process; however, Form PF requires certain RIAs to calculate RAUM more frequently than once a year. Specifically, RIAs with RAUM above or near "large filer" thresholds ($1.5 billion for advisers of hedge funds and $2 billion for advisers to private equity funds) will need to calculate RAUM on a monthly basis. If the applicable threshold is met as of any month-end during a calendar-quarter, the RIA acquires the "large filer" status and must maintain this status for the remainder of the year, regardless of any decline in RAUM below threshold levels. To add to the complexity, "large filer" status necessitates quarterly reporting and includes the more rigorous Part 2 and Part 4 of the Form.

Editor's Note: RIAs and their administrators do not ordinarily prepare balance sheets in conformity with U.S. GAAP on a monthly basis. As a result, "gross assets" as reflected on a monthly trial balance may not be reflective of the RIA's true RAUM, and, more importantly, may be prepared using a different methodology from the audited financial statements that are generally relied upon for ADV disclosures.


Industry practice is such that multiple balance sheet accounts of private fund financial statements are reclassified at year-end due to certain complex accounting rules. These reclassifications are often made after the close of a specific fund's net asset value during financial statement preparation and almost always include strong involvement of public accountants in order to achieve proper financial statement presentation in accordance with U.S. GAAP. Therefore, it can be said that correctly calculating RAUM also requires an in-depth understanding of complex accounting rules and an ability to apply them to the balance sheet each time RAUM is assessed. Given the many complex reclassifications to fund balance sheets, assessing RAUM with as minor an understanding as "gross assets" may not lead to an accurate RAUM assessment for more than a majority of investment advisers, especially those who:

  • employ shorting strategies;
  • utilize leverage;
  • have more than one prime broker;
  • trade with multiple counterparties; or,

While the SEC has not provided direct guidance on this issue, it has clearly stated that firms are permitted to rely on GAAP financial statements in calculating RAUM and must ensure a consistent methodology across all regulatory filings.

Bridging the gap between internally-generated fund balance sheets and U.S. GAAP balance sheets can be an arduous process. RIAs are advised to put forth an effort to create processes that enable frequent and accurate assessment of RAUM.

Beyond this, investment firms should develop a permanent strategy to address other RAUM peculiarities such as:

  1. How often these calculations are to be performed;
  2. Choosing the correct "as of" date;
  3. Determining when it may be required to aggregate managed accounts and certain other parallel fund structures; and
  4. Deciding on a plan of action once RAUM is determined to ensure compliance with new regulations.


Calculating firm-wide RAUM is a complex undertaking requiring intimate knowledge of firm positions, strategies and accounting practices. For many RIAs, this calculation will need to be done periodically, and for some monthly. It is important that the methodology used be consistently applied for all reporting purposes throughout the year. Rothstein Kass Business Advisory Services can assist in this difficult task by employing its expertise and understanding of the components to RAUM.

Gary S. Kaminsky, Principal,

Gary S. Kaminsky is a principal with the Business Advisory Services Group at Rothstein Kass. He has over 25 years of experience in the securities industry, particularly with issues relating to the legal/compliance and operational infrastructure of alternative investment companies. Gary works with investment management clients, including hedge funds, private equity funds and broker-dealers, to advise on regulatory/compliance issues and conduct independent reviews of operations and optimize reporting processes. He also assists in the development and maintenance of effective enterprise risk management systems that facilitate compliance with existing and new regulatory guidelines.

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Rothstein Kass

Rothstein Kass is a premier professional services and business consulting firm that has served privately held and publicly traded companies, as well as high-net-worth individuals and families, for over 50 years. As trusted advisors to our clients, Rothstein Kass provides accounting, auditing and tax services, as well as a full array of integrated services, to clients across industry spectrums and in all stages of organizational development.

Material in this work is for general educational purposes only, and should not be construed as legal advice or legal opinion on any specific facts or circumstances, and reflects personal views of the authors and not necessarily those of their firm or any of its clients. For legal advice, please consult your personal lawyer or other appropriate professional. Reproduced with permission from Rothstein Kass. This work reflects the law at the time of writing.