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 fourth quarter and fiscal year. We're also very excited to announce the acquisition of Lexington Partners, and I am delighted to extend our warmest welcome to such a talented team. Lexington's business provides us the exposure to a critical growth area in the alternative asset business, and we cannot be happier with this new partnership. We will cover on this transaction in a few minutes.
Matthew Nicholls, our CFO, and Adam Spector our Head of Global Distribution on the call with me today. We're also joined by Tom Gahan, Head of Franklin Templeton Alternatives; and Will Warren, President of Lexington Partners, will be available for questions after our prepared remarks. I'll start by reviewing this year's milestones. Then Matt will go through our financial results for the quarter and the fiscal year, as well as spend some time discussing today's important transaction in greater detail.
Throughout Franklin Templeton history we have invested in our business to build a truly diversified and resilient organization that performs across market cycles with a commitment to serving our clients, employees and shareholders. The results that we announced today represent the first full fiscal year since we closed the Legg Mason acquisition, a transformational transaction that created a more balanced business across asset classes, client mix and geographies. We are pleased to report that the strategic and financial benefits from our acquisition of Legg Mason exceeded our goals, and we have added important growth opportunities.
Over the course of the year we have created a management team consisting of key representation from Franklin Templeton, Legg Mason and our specialist investment managers. We have maintained our culture while invigorating collaboration and innovation across the firm. Through the hard work and dedication of our employees we've successfully brought two firms together to maximize our collective potential, one that successfully combines the attributes of global strength with boutique specialization. We've made strong progress, and yet in so many ways, we're just getting started. Turning to investment performance, there's been an improvement in performance across a broad base of investment strategies.
Through September, 71%, 69%, 72% and 77% of strategy composites outperformed their respective benchmarks across the four key time periods. This quarter, we had 53% of mutual fund AUM in funds with four- or five-star ratings by Morningstar, compared to 43% a year ago. During the year, we focused on updating our global distribution efforts by enhancing our generalist, specialist model, reshaping client coverage and deepening relationships in each sales region, particularly with the largest global financial institutions.
Fiscal year long-term inflows doubled to $365 billion from the prior year, notably, the U.S., which is our largest sales region with over $1.1 trillion in AUM was net flow positive for the year. In terms of notable organic growth, we saw positive net flows in our core growth areas, including alternatives, SMAs, wealth management and ESG-specific strategies. We executed important acquisitions to further grow and diversify our business in alternative assets, customization and distribution of investment strategies.
In terms of other accomplishments, our alternative asset strategies, an important area of focus for us, generated positive net flows in each quarter during the year and grew by 19% from the prior year to $145 billion in AUM with contributions from a diverse group of strategies, including real estate infrastructure, private debt and hedge funds. Several years ago, we announced our intention to create a full suite of alternative strategies and we've been very deliberate in building our capabilities.
In 2018, the acquisition of Benefit Street Partners brought us a leading alternative credit manager. In 2020, we added a world-class real estate manager with Clarion Partners. This focus on alternative led us to today's announcement of the acquisition of Lexington Partners, a leader in secondary private equity and co-investments. We now have top tier specialist investment managers in all of the key alternative categories, with Benefit Street Partners, Clarion Partners, Franklin Venture Partners, K2 and now Lexington Partners. Specifically with the Lexington Partners transaction I'm excited that Franklin will be partnering with such an outstanding firm that is led by an experienced and talented team, immediately bringing a scale and capabilities in an interactive and growing global market.
There will be no changes to the team or its independent investment management process, and they will continue to operate autonomously as Lexington Partners. Upon the close of this transaction, we expect our alternative AUM to approach approximately $200 billion and over $1 billion in revenue, excluding performance fees. Matt will review the additional details of the transaction shortly. Another core growth area is our separately managed account business. We are a top three provider in SMAs with $125 billion in assets under management, which is one of the fastest growing segments in retail.
Our SMA business grew by 22% in AUM year-over-year and generated positive net flows in each quarter during the fiscal year. Our recently announced acquisition of O'Shaughnessy Asset Management and its Custom Indexing Platform, Canvas, will take our existing strength in SMAs to the next level, enhancing our tax management factor-based and ESG customization capabilities. Canvas was launched in late 2019 and has seen strong growth since its inception and now represents $1.9 billion of the firm's total AUM of $6.3 billion as of September 30.
The transaction will bring compelling benefits to the clients that both companies serve across multiple channels. There's no question that investors are more focused on ESG goals than ever before. Increasingly, there are three dimensions to ESG that investors consider; ESG factors as understood risks in a portfolio, how ESG contributes to overall returns, and the overall impact of ESG considerations to society and the environment.
As an active manager approximately 95% of our AUM represents strategies that consider ESG factors as part of the investment process and ESG specific strategies representing over $200 billion in AUM were net flow positive in each quarter this fiscal year. All this being said, none of our accomplishments this past year would be possible if it weren't for our employees. We're extremely fortunate to have such dedicated colleagues who are focused on achieving investment excellence, fostering enduring relationships and delivering superior service to our broad range of investors around the globe.
Now, I'd like to turn it over to our CFO, Matthew Nicholls, who will review our financial results from the fourth quarter and fiscal year, as well as take you through the specifics of the Lexington transaction. Matt?