* Total assets at end-December 101 bln stg
* Net outflows of 4 bln stg, led by retail investors
* Shares down 2.1 pct; says Janus tie-up on track (Adds analyst quote, share reaction, background)
By Simon Jessop
LONDON, Feb 9 (Reuters) - Fund manager Henderson Group's total assets rose 10 percent to 101 billion pounds ($126 billion) in 2016 after market gains more than offset the impact of retail customers withdrawing money.
Henderson said the weakening demand was the result of a broad pullback from European assets, and was exacerbated by a weak performance in some of its equity funds, although it did see improved demand from institutional investors.
"Market conditions proved challenging for our investment management teams," Chief Executive Andrew Formica said in a statement on Thursday, with just half of the group's assets outperforming over one year and amid a particularly weak performance from its European and Global equities strategies.
Net outflows for the year were 4 billion pounds, it said, compared with net inflows of 8.5 billion pounds the year earlier, and performance fees fell 59 percent to 40.4 million pounds, dragging on profits.
Underlying profit before tax was 212.7 million pounds, down from 220 million a year earlier.
Henderson said its planned $6 billion purchase of rival U.S. asset manager Janus Capital was on track to complete by the end of May, and it planned to pay a final dividend of 7.30 pence a share. That would give a total dividend of 10.5 pence, up from 10.3 pence the year before.
Shares in Henderson were down 2.1 percent at 0834 GMT, the second-biggest fall on the UK mid-cap index, in contrast with emerging markets-focused peer Ashmore Group, which beat half-year profit forecasts and saw its shares rise.
Calling the results in line with expectations, analyst Jonathan Richards at Keefe, Bruyette & Woods gave the stock a 'Market Perform' rating and a 260 pence price target in a note to clients.
"(Henderson's) shares have come under pressure as the market has focused on the company's exposure to the European equity product suite, and lost enthusiasm for Henderson's merger of equals with Janus Group," he said.
"Given the company's reliance on European equities, we view its discounted valuation as correct."
$1 = 0.7991 pounds Reporting by Simon Jessop; Editing by Mark Potter