Jennifer M. Johnson
President and Chief Executive Officer at Franklin Resources
Thank you, Selene. Hello, everyone, and thank you for joining us today to discuss Franklin Templeton's results for our third fiscal quarter. Greg Johnson, our Executive Chairman; Matt Nicholls, our CFO; and Adam Spector, our Head of Global Distribution, are also on the call with me today. We hope that everybody is doing well. This past Saturday marked one year since we closed on our landmark acquisition of Legg Mason and its specialist investment managers. As we stated at the time, this is a growth story for our firm and our focus continues to be on delivering strong investment results for our valued clients. This commitment has been our North Star throughout the past year. Over the past 12 months, through the hard work and dedication of our employees, we've made significant strides bringing together the two firms and executing on our growth strategy.
We have created a diversified business across asset class, vehicle, client type and region and we're well positioned in key growth areas where there is client demand, including alternatives, fixed income, SMAs and ESG investing. Early on, we redesigned a nimbler and more adaptable distribution model with a more region-centric sales approach, pushing our decision-making and resources closer to our clients, and the positive momentum we're seeing around sales flows shows that what we're doing is working. Our sales initiatives are resulting in deeper relationships and increased diversification in flows across funds, vehicles and asset classes. These factors have led to significant improvement in total net flows since the time of the acquisition. Our combined sales team has been actively cross-selling.
In the U.S. alone, almost 6,000 financial advisers have deepened their relationships with Franklin Templeton through enhanced access to newly introduced capabilities. Specifically, this progress has led to growth in key areas of the business. Since the acquisition, we've grown alternatives by 15%, wealth management by 22% and SMAs by 25%. Above all else, we've been incredibly aligned in terms of culture and our focus on delivering strong investment results. Our efforts this past year have translated into a better, stronger Franklin Templeton. Turning now to our third fiscal quarter where our momentum has been building. Ending assets under management reached a record high of $1.55 trillion this quarter, and investment performance continues to strengthen across a broad array of investment strategies.
Overall, results continue to reflect outperformance in fixed income, including Western Asset and Brandywine Global alternative asset strategies and global and international equity strategies across Franklin Templeton equities. Mutual funds with four or five star ratings by Morningstar increased to over 150 funds this quarter. Turning next to distribution highlights. We saw positive net flows into the majority of our specialist investment managers and Benefit Street Partners, Clarion, ClearBridge, Fiduciary Trust International, and Martin Currie, all reached record highs in assets under management. We were pleased to see a record $3.1 billion in net inflows to alternatives, and also that our fixed income net inflows returned to positive territory at $2.1 billion. We made progress diversifying our net flows across funds, vehicles and asset classes during the quarter, scaling smaller products and creating broader sources of revenue.
For example, 15 of our top 20 funds with positive flows or products outside of our largest 20 funds, and each have an average AUM of less than $2 billion. In the U.S., our collective sales initiatives are yielding positive results with net flows during the quarter. Specifically, we saw net flows into U.S. retail, which is our largest distribution opportunity and in global financial institutions, our largest client opportunity. On the product development front, we launched the $1 billion pre-leverage Western Asset Diversified Income Fund. This was our largest ever fixed income closed-end fund IPO and illustrates the successful partnering of our SIMs investment capabilities with the combined reach of our distribution platform. Additional recent strategic developments include: the close of the acquisition of Diamond Hill's high yield-focused U.S. corporate credit mutual funds in July, adding $3.4 billion to assets under management; and the announcement of a merger of Benefit Street Partners Realty Trust with Capstead Mortgage Corporation, which will create the fourth largest publicly traded commercial mortgage REIT upon closing.
Looking at our financial results. Our adjusted operating income increased by 3% to $601.2 million from the prior quarter, inclusive of the onetime impact of costs associated with the successful launch of the Western Asset closed-end fund that I just mentioned. And with $6.4 billion in cash and investments, the ongoing strength of our balance sheet enables us to invest with confidence in the business and make sure we're best positioned to be a leader in an ever-evolving industry. Finally, I want to thank all of our employees for their efforts this past year working under extraordinary circumstances. I'm extremely proud of what we've been able to accomplish on behalf of our clients. Now to your questions, operator?