The Obama Administration sent a proposal to Capitol Hill July 15th that would dramatically increase the Securities and Exchange Commission’s oversight of private investment funds, including those that invest in real estate securities. The Private Fund Investment Advisers Registration Act of 2009 iv reg advisers priv funds 7 15 09 fnl.pdf would require all hedge fund advisers with more than $30 million in assets to register with the SEC and report their activities on a regular basis. The bill also gives the SEC broader powers to regulate the capital, liquidity and risk of those funds. Regulators tout the bill as a way to protect investors, provide transparency and prevent destabilizing behavior by hedge funds. “At various points in the financial crisis, de-leveraging by such funds contributed to the strain on financial markets,” the Treasury said in a statement. “Because these funds were not required to register with regulators, the government lacked the reliable, comprehensive data necessary to monitor funds’ activity and assess potential risks in the market.

But even market advocates say the plan is vague and overreaching. Its definition of “private fund” is “broad enough to encompass investment vehicles that are not typically thought of as hedge funds,” according to Boston-based securities attorneys at the law firm Bingham McCutcheon LLP. Funds that invest in real estate-backed securities or REITs are also on the hook. Additionally, “the reporting requirement will encompass much of the the core strategic information now closely held by the advisers,” according to Ron Diel of the Diel Group Inc., a financial consulting firm. That means hedge fund advisers will entrust some of their most confidential proprietary methods and practices to SEC investigators. It would be a short step from there to limiting “the trading and other activities of private fund advisers,” according to the law firm Gibson, Dunn & Crutcher LLP. There’s no word yet on the Adviser Act’s chances for passage, but it is a slightly broader version of the Private Fund Transparency Act of 2009 introduced June 16 by Sen. Jack Reed (D-RI). Even skeptics acknowledge the bill’s main purpose–giving the SEC teeth to keep hedge funds in line–is likely to get greater attention from lawmakers. “There is a case for using the rulemaking powers of an agency to address complex topics,” Diel said. “Nevertheless, it would have been good to be more specific.”