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 the first fiscal quarter of 2023. I'm joined by Matt Nicholls, our CFO and COO, and Adam Spector, our Head of Global Distribution. We're pleased to answer any questions you have. But first, I'd like to call it, a few highlights from the quarter.
Despite the challenging market backdrop in our first fiscal quarter, we saw a number of positive developments to further diversify our business. This quarter, we continue to see net inflows into key growth areas such as into our three largest alternative managers, Benefit Street Partners, Clarion Partners, and Lexington Partners, as well as multi-asset strategies, ETFs and our custom indexing solutions platform Canvas. We were also pleased to see additional positive indicators impacting our business, including an increase in our institutional won but unfunded pipeline and improving overall investment performance across our strategies. I'll cover all of this in more detail momentarily.
While the industry landscape remained under pressure, we have continued to benefit from our diversified mix of asset classes, geographies client types and investment vehicles. Turning now to flows, we generated total net inflows of $6.6 billion this quarter, inclusive of $17.5 billion of net inflows from cash management. Long-term net outflows were $10.9 billion and included reinvested distributions of $12.1 billion. This quarter we saw net inflows into key growth areas of client demand.
Starting with alternatives, as mentioned earlier, our three largest alternative managers, Benefit Street Partners, Clarion Partners, and Lexington Partners, each had net inflows for the quarter totaling $2.4 billion. Multi-asset net flows increased almost five-fold from the prior quarter to $2.4 billion, driving the interest in the multi-asset category was our flagship Franklin Income Fund with its flexible approach to changing market conditions. This $70 billion U.S. fund is now rated four stars overall by Morningstar and continues to have a strong performance. Our broader multi-asset solutions strategies, we're also in net inflows.
Fixed income net outflows of $13.3 billion were primarily due to certain U.S. taxable and global opportunistic strategies. Client interest, however, continued and we benefited from having a broad range of fixed income strategies with non-correlated investment philosophies, including net inflows into the certain Core Bond, U.S. income and tax efficient strategies.
We are pleased to note that Western's performance reverted back to its leadership position during the quarter. At quarter end, 89% of the firm's strategies outperformed the benchmark on an AUM basis for the quarter and Western's two primary Core Bond funds were ranked in the top decile on a quarter-to-date basis versus their respective peer groups. Equity net inflows were $300 million and included $9 billion in reinvested distributions. This quarter the risk-off environment continued to impact investor sentiment on certain growth strategies, which were offset by positive net flows into strategies such as Large Cap and All Cap Value, Large Cap Core and Emerging Markets.
Cash Management generated the highest net inflows in over a decade, with $17.5 billion of inflows were driven by institutional demand for low risk assets at a higher risk free rate and diversified across client type. As a leading SMA provider, particularly in model delivery, we ended the quarter at $105 billion in SMA AUM. Canvas has achieved net inflows every quarter since the platform launched in September 2019 and AUM increased over 25% in the quarter. ETFs had $1 billion in net inflows and reached $13.3 billion in AUM.
We launched the ClearBridge Sustainable Infrastructure ETF during the quarter and added specialized sales resources to strengthen our ETF efforts. We were also pleased to see our institutional pipeline of won but not funded mandates increased by $8.8 billion to $23.8 billion and included a $7.5 billion fixed income institutional mandate.
Turning now to performance, our investment teams have remained true to their distinct disciplines and time tested approaches relentlessly searching for those long-term investment opportunities that market dislocations often present. We saw an uptick in relative investment performance in nearly all standard time periods. This quarter, the majority of our strategy composite AUM and mutual funds AUM outperformed their benchmarks and peers respectively on a one, three, five and 10-year basis. In addition, 51% of mutual fund AUM was in funds rated four or five stars by Morningstar.
As I've said time and again the next decade is not likely to look like the last and we continue to invest strategically in areas that are shaping the future of our industry. Alternative investing is one of those areas. During the quarter, we closed the acquisition of Alcentra, a leading European alternative credit manager. This acquisition increased our alternatives credit AUM to $78.5 billion. And as for secondary private equity, as of November 30, Lexington had raised $12.8 billion for its latest fund and continues its fund-raising efforts.
Alternative assets now account for $257 billion or 19% of our total AUM and a higher percentage of adjusted revenue. We are now one of the largest managers of alternative assets and are realizing our aspiration to be one of the few diversified firms globally that offer the major categories of alternative assets. One of the lessons that 2022 thought many investors, is it diversifying beyond traditional asset classes to solve for their long-term goals is probably a good idea. We think this will drive increased adoption of alternative assets in the wealth channel, where we've made progress.
We continue to focus on product development and suitability, sales and marketing and client education in the distribution of alternatives in wealth management. For example, Benefit Street Partners announced the launch of Franklin BSP Private Credit Fund, investing in U.S. middle market private credit seeking to generate strong current income and superior risk-adjusted returns across market cycles.
In November, the Franklin Templeton Academy announced the launch of its alternative education program as part of our ongoing effort to build knowledge and proficiency around the alternative investment landscape. The program offers a comprehensive curriculum on various types of alternatives including courses on private equity, real estate, private credit, infrastructure and hedge strategies.
Touching briefly on our financial results, which reflect two months of Alcentra, given its closing on November 1, ending AUM was $1.39 trillion, an increase of 7% from the prior quarter, primarily due to market appreciation and the addition of Alcentra. Average AUM decreased by 1.5% to $1.35 trillion. Adjusted revenues were $1.44 billion, a decrease of 6% from the prior quarter. The decrease was driven by lower adjusted performance fees and lower average AUM. However, the effective fee rate, which excludes performance fees was 39 basis points, a slight uptick compared to 38.8 basis points last quarter.
Adjusted operating income was $395.1 million, a decline of 20% from the prior quarter or 12% excluding annual deferred compensation acceleration for retirement eligible-employees of $37 million. We continue to benefit from a strong balance sheet with total cash and investments of $6.6 billion at quarter end after reflecting the purchase of Alcentra and payment of fiscal year end cash bonuses.
Let me wrap up by saying that over our 75 year history, our North Star has always been the clients we serve. We are committed to continuing to seek opportunities to expand our capabilities to provide investors with financial investments that are important in reaching their goals. Finally, I would like to thank our global employees without whom our progress would not be possible. Their work is greatly appreciated. And I thank them for their many contributions to our organization.
Now let's turn it over to your questions. Operator?
