Asset Management operating revenue was $245 million in the fourth quarter of 2012, a 20% increase over the prior-year period and 11% higher than the third quarter of 2012. Net outflows were $47 million in the fourth quarter of 2012.
Average AUM for the fourth quarter of 2012 was $164 billion, 17% higher than the prior-year period and 5% higher than the third quarter of 2012.
Management fees were $209 million in the fourth quarter of 2012, 10% higher than the prior-year period and 3% higher than the third quarter of 2012. The sequential increase is generally consistent with the increase in average AUM.Incentive fees were $27 million in the fourth quarter of 2012, compared to $5 million in the prior-year period, primarily reflecting the performance of alternative strategies, as well as certain traditional strategies. OPERATING EXPENSES Compensation and Benefits In managing compensation and benefits expense, we focus on annual awarded compensation (cash compensation and benefits plus deferred incentive compensation with respect to the applicable year, net of estimated future forfeitures and excluding charges). We believe annual awarded compensation reflects the actual annual compensation cost more accurately than the GAAP measure of compensation cost, which includes applicable-year cash compensation and the amortization of deferred incentive compensation principally attributable to previous years’ deferred compensation. We believe that by managing our business using awarded compensation with a consistent deferral policy, we can better manage our compensation costs, increase our flexibility in the future and build shareholder value over time. Adjusted GAAP compensation and benefits expense 1 for full-year 2012 was $1,218 million, which excludes related 2012 charges 2, compared to $1,168 million for 2011. The corresponding adjusted GAAP compensation ratio was 61.8% for the year, compared to 62.0% for 2011. The 2012 adjusted GAAP compensation ratio includes, among other items, amortization expense related to 2008 deferred compensation, which had a comparatively longer, four-year vesting period. For full-year 2012, we expensed approximately $40 million related to the 2008 grants, or 2% of 2012 operating revenue.