FRANCE - As much as 60% of French institutional investors will diversify their real estate portfolios either geographically or into different investment strategies, the ratings firm MultiRatings has found.

In a survey of  40 institutional investors - almost half of which are pension vehicles - 67% noted they had investments in real estate but most of them are direct holdings in property in the greater Paris region of Ile-de-France.

Approximately 50% of those surveyed said they were mainly invested in this particular region, while another 39% named France as a whole as their principal field of investment and only 11% said they had chosen Europe as a whole.

It is anticipated many funds want to go more European with their investments in 2008, while some want to diversify further afield.

Just over half the investments are thought to be in direct real estate holdings, while 19% is in non-listed funds and 28% of assets are held in listed property.

Virtually no money was put into more complex, structured real estate products, suggests the survey, but analysts expect a small shift into non-listed real estate funds over the next year.

Similarly, it is suggested, based on feedback from participants, the large bias in office real estate could be cut a fraction to increase holdings in commercial property.

French funds noted they invested in real estate mainly to bring diversification to their portfolios as this asset class was almost uncorrelated to others.

Many also said they expect a return of 5-8% over the medium to long-term from their property investments, yet as much as 23% noted they only expect the investment to hedge their portfolio against inflation.

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