NEW YORK (CNNMoney.com) -- A pension reform bill moving through Congress includes a clause to allow hedge funds to manage significantly more pension-fund money, according to a published report.

The Wall Street Journal reports that the largely unregulated hedge fund industry is looking to lift a federal regulation that places restrictions on how they manage money if they get more than 25 percent of their assets from pension funds.

Between January 1997 and January 2005, pension-fund assets invested directly in hedge funds grew to $71 billion from $13 billion, according to the newspaper, citing statistics from Hennessee Group LLC, which advises hedge-fund investors.

But most hedge funds keep pension assets below the 25 percent limit because they don't want to be declared a fiduciary - that is, a party with specific legal obligations toward workers and retirees - under the existing federal pension regulations, according to the report.

The Managed Funds Association, a hedge-fund trade group, originally pushed to raise that limit to 50 percent of their assets. Now it has added language to the legislation that would no longer count assets of public-employee or foreign pension plans toward that 25 percent limit.

Lisa McGreevey, chief operating officer for the hedge fund trade group, told the newspaper that the current limit locks pension plans out of some of the better-suited hedge funds.

"The perverse situation is that the really good hedge funds get taken up with pension investments and can't take on any more, and that forces pension funds to go to investment advisers that they didn't really want," she said.

The Securities Industry Association, a major Wall Street lobby, and the Treasury Department support the change, according to the Journal.

But the AFL-CIO and the North American Securities Administrators Association, the group that represents state regulators, oppose it.

Hedge-funds strategies are "inconsistent with the philosophy of a pension fund, which should look at growth but in a secure way," Massachusetts Secretary of State William Galvin told the newspaper.

Securities and Exchange Commission Chairman Christopher Cox testified before the Senate Banking Committee this week that hedge funds were too risky for "Mom and Pop" investors, and therefore he's concerned that allowing greater use of hedge funds by pension plans "carries with it the potential for retail exposure to hedge fund risk."

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