The Investment Adviser Association said in a comment letter that the Securities and Exchange Commission’s proposed amendments to expand private fund advisor reporting are overly broad and unrealistic in their attempt to force advisors to do one-day reporting in certain situations.

Gail Bernstein, the IAA’s general counsel, also said that pulling hedge fund and private equity fund advisors away from their jobs to do reporting on what might be mundane occurrences could harm investors.

The proposed amendments are to Form PF, which is used by investment advisors to private funds. The changes would require all hedge fund, private equity and liquidity fund advisors to provide additional information, including one-business-day reporting for certain events such as 20% reductions in a fund’s net asset value. The amendments also decrease the reporting threshold for large private equity advisors from $2 billion to $1.5 billion.

The SEC said the changes are designed to improve regulators’ oversight and ability to monitor systemic risk.

“The commission’s experiences with recent market events, like the March 2020 Covid-19 turmoil and the January 2021 market volatility in certain stocks, have highlighted the importance of receiving current and robust information from market participants,” the agency said in a fact sheet.

While the IAA supports the SEC’s efforts to monitor systemic risk, the trade group has a number of concerns, Bernstein said in her letter.

Currently, advisors must file Form PF months after their quarter and year ends. The new proposal, however, would require large hedge fund advisors to file current reports within one business day if they experience “extraordinary investment losses, significant margin and counterparty defaults … and events associated with withdrawals and redemptions,” the SEC said.

“The commission has not identified how each of the proposed reporting items fills an important data gap or addresses systemic risk concerns. Nor has the commission explained how it will use all of the information to achieve its goals,” Bernstein said.

Some of the items that trigger reporting “are routine events in the investment management process or reflect investment losses that are consistent with fully disclosed investment risk, and do not raise systemic risk concerns or signal significant stress at a fund,” Bernstein added.

For example, she said, there are instances where a 20% reduction in net asset value is “perfectly benign.”

The commission’s “interest in obtaining information about and potentially crafting a regulatory response to these more routine types of events is outweighed by the challenges and extreme costs for advisors to generate current reports and the potential harm to investors from having advisors’ resources diverted for reporting of these items,” said Bernstein, who advocated for quarterly or annual reporting instead.

She asked that the SEC ensure “robust controls” for maintaining the competitively sensitive information they are asking private advisors to report, she said.

She also balked at what she termed the SEC’s first-time definition of “digital assets,” which the regulator asked for comment on.

“For the first time, and without much explanation, the commission seeks to define ‘digital assets’ … as it relates to private equity fund advisors’ reports … where their investments include ‘digital assets.’”

The proposal would define “digital asset” broadly to mean an asset that is issued and or transferred using distributed ledger or blockchain technology, including virtual currencies, coins and tokens.

“We strongly believe that the commission should not define digital assets in this proposal. Any definition adopted by the commission will have far-reaching implications not just for the securities laws but across the U.S. financial system. The definition of digital assets is not yet settled and should not be adopted without a robust discussion and debate among stakeholders and coordination with other regulatory agencies with an interest in overseeing these new assets,” Bernstein said.

She also objected to the brevity of the 30-day comment period the agency provided on the amendments. “We and other stakeholders did not have sufficient time to conduct analysis and provide a comprehensive response,” Bernstein said, echoing earlier industry criticism of SEC Chairman Gary Gensler’s inclination for providing short comment periods on proposed rule changes.