* Assets under management 356 bln Sfr vs 336 bln at end-2016
* Net new money in middle of 4-6 pct target (Adds detail, analyst comment, shares)
By Joshua Franklin
ZURICH, May 22 (Reuters) - Swiss private bank Julius Baer saw its assets under management swell 6 percent in the first four months of 2017 to 356 billion Swiss francs ($365.3 billion), echoing strong starts to the year by larger rivals UBS and Credit Suisse.
But higher-than-expected costs and only modest gains in profitability took some of the shine off the numbers.
After making a string of acquisitions in recent years, Baer focused in 2016 on recruiting new private bankers to attract new clients.
With a typical lag of around 18 months for a new banker to break even, Baer said this hiring was now paying dividends with net new money inflows in the middle of its 4-6 percent target range in the first four months of 2017. Net new money is a closely watched indicator of future earnings in private banking.
"We welcome Baer's promising NNA (net new asset) dynamic as the guided acceleration in NNA is a significant pillar of our investment case and the reason why the shares could re-rate from their current levels," Baader Helvea analyst Tomasz Grzelak, who rates the stock "buy", wrote in a note.
Shares were flat in early trading, while the European banking sector index dipped 0.3 percent.
Baer, Switzerland's third-biggest private bank, said in an interim management statement on Monday asset growth was also helped by market performance, although this was partly offset by the weaker U.S. dollar against the Swiss franc.
The new client money followed bumper starts to the year at Swiss rivals UBS and Credit Suisse.
The first three months of the year are considered a crucial window for private banks to make a chunk of their earnings, with millionaire and billionaire clients rebalancing their holdings and relatively few holiday breaks.
Baer said its gross margin rose by 2 basis points to close to 90 basis points "driven mainly by broadly equal improvements in the client-activity-driven and asset-based components of net commission and fee income".
At 71 percent Baer's cost/income ratio was outside its 64-68 percent medium-term target range, although the bank said it expects this to normalise close to the upper end of the range in 2017 and into the range in 2018.
Bank Vontobel analyst Andreas Venditti said these two performance measures lagged market expectations.
"While assets under management are slightly higher than expected thanks to net new money and market performance, gross margin and cost/income ratio are weaker than estimated," Venditti, who rates the stock "hold", wrote.
$1 = 0.9745 Swiss francs Reporting by Joshua Franklin; Editing by Himani Sarkar