Henderson, the FTSE 250 fund manager, today predicted Volatile market conditions will make for a tough second half of the year, with individual investors expected to shy away.

Henderson, which until 2003 was part of the AMP financial services giant, said market conditions meant it had to assume the flow of funds would be "more challenging" in the second half. The shares slipped 4p to 134.75p.

"All we're doing is saying the markets have been volatile; that tends to put off retail investors. It's prudent to assume that some flows into retail products will slow down in the second half," said chief executive Roger Yates.

Mr Yates cautioned that it could be early November before conditions in the credit and equity markets begin to stabilise and a clearer global economic picture emerges.

"It will take a couple of months before investors are going to be able to bottom things out - as we get to the end of the reporting season, late October, early November, after the investment banks have reported," he said.

"There is still value, but it is very difficult when investors cannot bottom out exposures."

Mr Yates was speaking as Henderson reported a surge in first half operating profits to £60.5 million and confirmed plans to return £250 million to investors through a special dividend and share consolidation. Both the results and the cash-back were at the top end of the City's expectations.

Almost a quarter of Henderson's assets under management are retail funds. Mr Yates said Henderson had plenty of new products on the go that he expected to add investment assets "even against the current backdrop".

Henderson plans to launch fixed income funds, as well as property-based investments in Asia, Germany and Italy, private equity, mutual funds and a new activist investor in partnership with PricewaterhouseCoopers, he said.

He also stressed that Henderson had no exposure to US sup-prime mortgage assets and said the group's hedge funds were comfortably ahead for the year. He said there had been "nothing extreme" in terms of swings in the values of fund assets.

"Notwithstanding current market volatility, the business is sound, with good diversification of revenues and options for growth," Mr Yates said.

Assets under management fell £300 million to £61.6 billion over the six month period, but this was largely due to outflows from closed books Henderson administrates for Pearl, Hugh Osmond's fund consolidater.

Costs at Henderson improved to 65.6 per cent of income. It said it still expected to meet its full year target of a cost:income ratio of 70 per cent.

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