* Net outflows 6.4 billion stg in 2011
* AUM up 4 pct to 64.3 bln stg
* Underlying pretax profit up 58 pct, oper margin 36.3 pct
LONDON, Feb 29 (Reuters) - British-Australian fund manager Henderson Group said contributions from recently acquired rival Gartmore lifted full-year earnings, softening the effects of the fear stalking the markets that prompted many clients to flee.
Underlying pretax profit rose 58 percent to 159 million pounds ($252 million) as Gartmore's boost and broader corporate cost controls helped lift Henderson's operating margin to 36.3 percent, it said on Wednesday.
The earnings were at the top end of guidance given by the firm late in 2011 but investors took a dim view of the client exodus, pushing shares 2 percent lower in early trading, compared with a flat London stock market.
While assets managed by the firm stood at 64.3 billion pounds, including 15.7 billion pounds from Gartmore, the impact on sentiment from the euro zone's debt crisis led to net outflows of 6.4 billion pounds over the year.
Chief executive Andrew Formica attributed much of the outflow to exits from European and U.S. mutual funds as well as the loss of some institutional mandates, adding the UK retail book remained "relatively stable" through last year's market turmoil.
"Against what is a strong set of financial results, I am obviously disappointed with the headline number of net fund flows. Clients, driven by the market uncertainty, sought to reduce exposure to risk assets across the board," he said.
Based on observations in the first two months of this year, Formica said that UK retail clients were not yet being tempted back in great numbers into funds by the recovery in equity markets and net flows remained negative.
But in Europe, where the firm saw the greatest weakness in 2011, the flows are now improving, mostly into defensive products like bond investments rather than equities, he said.
"Year-end assets under management is quite a bit lower than anticipated which may have some knock on impact to current year estimates ... but strong equity markets year to date will compensate for this," said Singer Capital Markets analysts in a note after the results were released.
The absorption of Gartmore also helped boost Henderson's management fees by 28 percent to 360.5 million pounds and transaction fees were up 39 percent to 51.1 million pounds.
"The acquisition of Gartmore has exceeded our expectations on all metrics," Formica said.
Meanwhile, the firm's hedge funds contributed a 52 percent lift in performance fees to 65.2 million pounds.
Henderson's board is recommending a final dividend of 5.05 pence, resulting in an 8 percent increase in the total dividend.
"This is in line with our progressive dividend policy and demonstrates our confidence in the business to continue generating good cash flows," Formica said.