LONDON (Reuters) - Fund manager Henderson Group still expects to hit its earnings and cost targets for the year and plans to increase its dividend payout ratio, it said on Thursday.

Turbulent markets have hit demand for investment products but the company stood by its goals for the year: to meet or beat 2007 operating profit in its main operating unit Henderson Global Investors and to achieve a cost-to-income ratio of 65 percent or less.

Withdrawals of funds by major client Pearl, along with unfavourable market and exchange rate movements of 1 billion pounds, caused its total assets under management to fall to 56.2 billion pounds at the end of April, from 59.2 billion at the beginning of the year.

Excluding Pearl fund movements, Henderson had net inflows of 900 million pounds.

Henderson (HGI.L: Quote, Profile, Research) said it would raise its dividend payout rate to 55 percent of profit after tax before one-off items in 2008. After that, it said it was likely to increase the payout ratio by 5 percentage points a year, to about 65 percent from 2010 onwards.

Investment market conditions so far this year had been difficult, which meant attracting new assets would be biased towards the second half of the year, Henderson CEO Roger Yates said in a statement.

Prospects look promising for its institutional and property funds, however -- the latter of which has a pipeline of 2 billion pounds to invest over the next two years, while it is looking to boost its hedge fund assets, Yates said.