UPDATE 3-GAM H1 profit rises as hedge funds recover

* GAM H1 net profit 106.3 mln Sfr

* Assets under management climb to 116.6 bln Sfr * Hedge funds unit has first net inflows in 2 years

* Company to buy back up to 10 pct of shares

* Shares up 2.4 pct (Adds analyst and company comment, shares, background)

By Martin de Sa'Pinto

ZURICH, Aug 24 (Reuters) - Swiss asset manager GAM Holding (GAMH.S) said first-half net profit rose 36 percent after the company staunched losses from its hedge funds unit, where clients added net new money for the first time in two years.

Assets under management rose 3 percent from the year-end to 116.6 billion Swiss francs ($112.9 billion) as net new money of 5.6 billion francs offset foreign exchange losses and the impact of falling equities.

GAM's net inflows contrasted sharply with first half results at UK-listed peers Henderson (HGGH.L) and Gartmore GRTR.L where assets flowed out the door, but mirrored the success of recently listed Jupiter (JUP.L). [ID>nLDE67J0CH]

The inflows and profitability came in ahead of analysts expectations, sending shares 2.4 percent higher to 12.60 francs at 1212 GMT, outperforming a 0.9 percent drop in the Swiss all-share index .SSHI as other financial stocks took hits.

"GAM surprises to the upside clearly," said Kepler Capital Markets analyst Mathias Bueeler. "This is a good set of results and the stock continues to be undervalued."

The company said it remained cautious over the near-term outlook, however.

"Private investors remain generally risk-averse and, in particular, continue to favour other asset classes over equities and hedge fund strategies," said Chairman and Chief Executive Johannes de Gier.

As a fund-of-hedge-funds company, GAM was bought by UBS (UBSN.VX)(UBS.N) in 1999 and sold to Julius Baer (BAER.VX) in 2005. GAM Holding, comprising GAM and S&G, was spun off from Baer last year. The net inflows were a sign GAM is no longer dependent on its former owners to sell its products. The company continues to develop independent distribution channels, said David Solo, chief executive of the S&G and GAM units

"We have reduced our dependency on sales from our former partners. When we were first sold we basically had no distribution (of our own)," Solo said.

SHARING THE PROFITS

The company also announced a buyback of upto 10 percent of its shares, equivalent to around 240 million Swiss francs, based on the company's closing price at the end of June, and said it may seek to increase assets through acquisitions.

"The share buyback programme complements our intention of returning approximately 50 percent of net profits to shareholders through dividends. We expect to be able to fund it largely with 2010 and 2011 earnings," de Gier said.

"Given our strong capital position, it does not impede the group's growth prospects: we continue to invest in the organic growth of our business and to screen the market for opportunities to make targeted, accretive acquisitions," he said.

GAM manages traditional assets such as fixed income and equity products, mainly through S&G, and higher-margin alternative assets like hedge funds through the GAM unit.

Overall profit margins slid in 2009 as the low margin S&G grew while the highly profitable GAM unit haemorrhaged assets as clients at previous owners Julius Baer and UBS pulled money out of fund of hedge funds. [ID:nLI311680] ($1=1.033 Swiss Franc) (Editing by Simon Jessop and David Cowell)