The reasoning behind the increased allocation is two-fold.First, PCA and Investment Committee staff agree that internationalfundamentals appear more attractive compared to the US on arelative basis and, two, they agree that CalPERS portfolio shouldbetter reflect the fact that the US represents only 20% of theglobal GDP and 30% of the global real estate market.

As part of the strategy, the structure of its real estateportfolio would be simplified into three basic categories--Core,Value-Add and Opportunistic--each of which would have US andInternational subcategories that would be further broken down byproperty type. Currently, there is a separate Internationalcategory.

Additionally, PCA and Investment Committee staff recommend thatthe International investing be done through larger separateaccounts with fewer managers; that staff become more specialized;and that CalPERS staff new offices in London and Asia to betterphysically manage the expansion.