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 first fiscal quarter. Matthew Nicholls, our CFO; and Adam Spector, our Head of Global Distribution are on the call with me today.
2022 marks Franklin Templeton's 75th anniversary as the company, a proud milestone to be sure. And although much has changed in that time span, our commitment to progress and the benefits of our shareholders, clients and employees has not. After joining the strong run since the pandemic rose, global equity markets in 2022 had a volatile start to the year. Navigating this environment reminds us of the value of active management and the importance of a resilient organization.
Throughout our history, we have worked to build a diversified business across asset classes, client types, regions and investment vehicles. In recent years, we've further diversified our firm to be well positioned to offer our clients a full range of investment solutions. Over the course of the past quarter, we've continued to make acquisitions and add resources in key areas driving industry growth such as alternatives, SMAs and wealth management as well as ESG and sustainable investing. As we look to the future, our strong balance sheet provides us with financial flexibility and positions us well across market cycles. Importantly, despite current market conditions, we have the resources to remain focused on executing on our long-term strategic priorities.
Turning now to our first fiscal quarter results. Long-term net flows of $24.1 billion was the third highest in company history and marks the first positive quarter since December 2014. This compares to long-term net outflows of $9.9 billion in the prior quarter and $4.5 billion of outflows in the prior year quarter. All asset classes saw improved long-term net inflows for the quarter and alternatives posted a 10th consecutive quarter of net long-term inflows with $3 billion.
Reinvested distributions which were typically higher in the first quarter were elevated at $23.5 billion compared to $12.6 billion in the first quarter of 2021. However, including or excluding the reinvested dividends and the newly won mandates from a new investment team, we made progress in all asset classes. We remain focused on evolving our global distribution efforts, and the improvements we have made are driving growth.We have prioritized our focus on our largest markets and clients, which has led to positive long-term net flows in the U.S. and our EMEA region. We're in deepening relationships and are positioned for continued sales momentum as we focus on cross-selling across all regions.
Investment performance was strong across all periods with 61%, 70%, 71% and 77% of our strategy composites outperforming their respective benchmarks on a one, three, five and 10-year basis. For the quarter, 54% of our mutual fund AUM were in funds rated four or five star by Morningstar compared to 41% a year ago. Assets under management increased 3% during the quarter to $1.58 trillion, and that's an increase of 5% compared to the same quarter a year ago or 8% based upon average AUM. The financial results from our business continued to improve, adjusted operating income increased by 6% to $686 million quarter-over-quarter and was 25% higher than last year at this time.
As mentioned earlier, we believe that we are well positioned to capitalize on a number of important trends influencing our industry. Let's start with alternative asset management. Alternatives represent an increasing share of the asset management industry and a key strategic priority for Franklin Templeton. For the most recent quarter, our alternative assets under management grew 6% from the prior quarter to $154.3 billion and by 21% from the prior year period. With our announcement to acquire Lexington Partners, we now have leading specialist investment managers in key alternative asset categories. When the transaction closes, our pro forma alternative assets under management are expected to be approximately $200 billion. To further develop our alternative asset efforts, this quarter we also made strategic investments in North Capital, an early-stage private securities market platform; and CAIS, a market leader in providing retail investors and their advisers access to alternative investments.
Another important area is SMAs given their higher relative growth rates versus other retail products. Our SMA business grew 8% from the prior quarter to a record $135.7 billion in AUM and by 20% from the prior year quarter. As part of our strategic initiative to bring sophisticated customization to a larger segment of investors, our acquisition of O'Shaughnessy Asset Management, which closed on December 31, enhances our ability to deliver individualized SMA solutions as we continue to advance the broader evolution of managed accounts. Canvas, our custom indexing solution, has doubled its assets in the past year to over $2 billion. Additionally, the number of partner firms have increased three-fold since the announcement.
Investors are more focused on ESG and sustainable investing than ever, and we aim to provide a range of investment solutions to meet their highly personalized goals and objectives. We're committed to investing in the expertise, resources and tools to develop our leadership position in this critical area. In this context, we are excited to recently announced Anne Simpson as our Global Head of Sustainability, a newly created role charged with driving Franklin Templeton's overall strategic direction of stewardship, sustainability and ESG investment strategy globally. Anne brings an extensive background with experience in public pension plans, academia and the international regulatory and policy arena. We've made important strides in this area in recent years, and Anne's expertise and leadership will help take our firm-wide efforts to the next level.
Another strategic development that occurred during the quarter was our agreement with FIS to assume operation of our global transfer agent through a phased transition over the coming year. The combination of leading technology built by both companies will form a unique global TA offering that will deliver an enhanced service experience. Importantly, the move to a single transfer agent platform will allow fund shareholders and financial professionals the ability to purchase and exchange all of our funds with greater ease. This change is a natural evolution of our business and follows our successful efforts to strategically partner with industry leading firms for functions, including fund administration and the application technology.
Stepping back and reflecting on our overall efforts the past several years as we brought together a world class specialist investment managers, Franklin Templeton is a different business today. We've made significant progress. And yet, as I've said on the previous calls, in so many ways, we're just getting started. That's why in January, we announced the launch of our global advertising campaign, Hello Progress, which reintroduced the Franklin Templeton brand and embodies our relentless focus on innovation and the belief that every change creates an opportunity to better meet client needs. We have a new story to tell. We've built a stronger and more vibrant company. We now offer more boutique specialization on a global scale. Our clients have access to the specialist and expertise they need, while enjoying the confidence that comes with working with the firm of our size.
Let me wrap up by saying that none of our accomplishments would be possible if it weren't for our dedicated employees. I'd like to thank them for their ongoing focus on the client, which has helped our business to thrive for the last 75 years and positions us well for the next 75.
And now we'd like to open the call up to your questions. Operator?