* Net inflows 2.6 bln stg in Q3 vs forecast 1.1 bln stg
* Assets under management 202.8 bln stg at end-September
* Pretax profits 88.6 mln stg in Q3
* Shares rise 1.2 pct
By Tommy Wilkes
LONDON, Nov 8 (Reuters) - British fund firm Schroders said clients added 2.6 billion pounds ($4.2 billion) of net new money in its third quarter, beating forecasts by a big margin as more benign markets encouraged them to invest.
Analysts had expected inflows of around 1.1 billion pounds for the three months to end-September, but much stronger demand from both institutional and retail clients lifted assets at the 200-year old investment manager.
Funds under management rose to 202.8 billion pounds, up from 194.6 billion pounds three months earlier, Schroders said in a trading statement on Thursday.
Rivals have reported a more mixed performance in the last few months, as they try to persuade clients to take advantage of a rally in risk assets and more stable markets.
Jupiter Fund Management posted net inflows in its third quarter while Henderson and Aberdeen Asset Management suffered outflows for their most recently reported periods.
However, Schroders also said it expected a slowdown in institutional flows in the short term and cautioned that the pick-up in retail flows may not herald a longer-term trend.
"It is not clear whether this more positive tone in Intermediary (retail) will be sustained given the uncertain economic background," the firm said.
The inflows into its retail-focused unit - which at 800 million pounds were double forecasts - were welcomed by JP Morgan analysts.
"Institutional flows are always lumpy and difficult to predict, and the outperformance in this area cannot be extrapolated we believe ... The performance in Intermediary (retail), however, is particularly reassuring after the outflows seen previously from European business," they said in a note.
Shares in the group were 1.15 percent higher by 0800 GMT, ahead of a 0.4 percent rise in the FTSE 100.
Of the 2.6 billion in net inflows for the three months to end-September, institutional clients added 1.9 billion pounds while retail clients added 800 million pounds, Schroders said.
Its private banking arm saw net outflows of 100 million pounds.
Pretax profits for the quarter came in at 88.6 million pounds, down from 101.6 million a year earlier.
The firm's Asset Management arm - where most revenues are earned - reported 1.9 million pounds of performance fees in the quarter against 14.3 million last year.