Through September, 71%, 69%, 72% and 77% of strategy composites outperformed their respective benchmarks across the four key time periods.
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 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.
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.
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.
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.
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.
Fourth quarter long-term net outflows were $9.9 million, which were partially offset by the acquisition of Diamond Hill's high yield focused U.S. corporate credit mutual funds, which added $3.5 billion in AUM and closed in July.
This quarter included the previously disclosed $5.4 billion 529 plan redemption, which included $4.7 billion of long-term assets and $2 billion fixed income, institutional redemption that have minimal impact to revenue and $800 million of fixed income outflows from the non-management fee, earning India credit funds that are in the process of liquidation.
Reinvested dividends were $2.3 billion in this quarter.
1% higher average assets under the management of $1.55 trillion compared to the prior quarter, plus $69 million of performance fees generated $1.66 billion in adjusted revenue for the fourth quarter.
Investment management fees, excluding performance fees was 3% higher compared to the prior quarter.
Adjusted operating expenses of $1.01 billion for the quarter were 3% lower due to lower compensation and lower G&A as a result of last quarter's upfront closed-end fund expenses.
This led to an 80% increase in adjusted operating income of $647 million and an adjusted operating margin of 39%.
Fourth quarter adjusted net income and adjusted diluted earnings per share increased 31% to $645 million, or $1.26 per share.
These results include favorable discrete tax items of $135 million or $0.30 per share for the quarter.
For the full year, adjusted revenues were $6.32 billion and adjusted operating expenses were $3.94 billion, an increase of 63% and 65% respectively.
This led to fiscal year adjusted operating income of $2.38 billion, which was 60% higher compared to the prior year.
Our adjusted operating margin was 37.7%.
Compared to the prior year, fiscal year adjusted net income increased 46% to $1.92 billion and adjusted diluted earnings per share increased 43% to $3.74 per share, which included the impact of favorable discrete tax items of $175 million or $0.34 per share for the full year.
As planned, we have achieved a run rate of 85% of our targeted merger-related cost synergies of $300 million this year.
We anticipate that 100% of these synergies will be achieved by the end of fiscal year 2022.
For the fiscal year ended September 30, we returned $782 million to shareholders through dividends and share repurchases.
Specifically, we issued $850 million of 1.6% senior notes due 2030 and $350 million, 2.95% notes due 2051.
We redeemed $250 million of 6.38% Legg Mason Junior subordinated notes due 2056 on March 15, 2021, and $500 million of 5.45% Legg Mason Junior subordinated notes due 2056 on September 15 2021.
We ended the quarter with $6.93 billion of cash and investments.
As outlined in the transaction summary document, Lexington Partners is a global leader in secondary private equity and co-investments with current fee based AUM of $34 billion.
Since its founding in 1994, Lexington has raised over $55 billion in aggregate capital commitments and currently has a team of 135 employees across eight global offices.
It is expected to generate revenue of approximately $350 million and EBITDA of approximately $150 million in 2022.
As Jenny mentioned earlier, this transaction takes us one important step further in creating a larger and more diversified alternative asset business that will result in pro forma fiscal year 2022 alternative asset AUM of approximately $200 billion, producing approximately $1 billion in annual management fee revenue, excluding performance fees at a margin of approximately 40%.
Turning to financial terms of the transaction, we're acquiring 100% Lexington Partners for $1 billion in cash at closing plus a further $750 million in cash over the next three years.
Consistent with this, we will be simultaneously issuing grants equal to 25% of Lexington to employees of Lexington, subject to five year vesting and establishing a performance based cash retention pool of $338 million to be paid over the next five years.

Summary:
1% higher average assets under the management of $1.55 trillion compared to the prior quarter, plus $69 million of performance fees generated $1.66 billion in adjusted revenue for the fourth quarter.
Fourth quarter adjusted net income and adjusted diluted earnings per share increased 31% to $645 million, or $1.26 per share.