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The U.S. Securities and Exchange Commission voted Wednesday in favour of proposing several changes to the act governing investment advisers.

If passed into law, the rules would prohibit private fund advisers, including those not registered with the SEC, from providing certain types of preferential treatment to investors in their funds and all other preferential treatment unless it is disclosed to current and prospective investors, the SEC said in a release.

There would also be new requirements for private fund advisers related to fund audits, books and records, and adviser-led secondary transactions.

Finally, private fund advisers would be prohibited from engaging in activities such as:

  • seeking reimbursement, indemnification, exculpation, or limitation of liability for certain activity;
  • charging certain fees and expenses to a private fund or its portfolio investments, such as fees for unperformed services and fees associated with an examination or investigation of the adviser;
  • reducing the amount of an adviser clawback by the amount of certain taxes;
  • charging fees or expenses related to a portfolio investment on a non-pro rata basis; or
  • borrowing or receiving an extension of credit from a private fund client.

The proposal is “a key step in bringing much-needed transparency for investors and accountability in the vast private funds market” the Washington, D.C.-based Americans for Financial Reform said in a statement. The AFR advocates for transparency for all financial products and markets, among other things.

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“There are now more private funds alone than publicly listed companies, so there are trillions of dollars at stake here,” said Andrew Park, senior policy analyst with the AFR, in a statement. “The lack of transparency and accountability for private funds makes a handful of rich people even richer and worsens inequality and the racial wealth gap.”

The Washington Post reported that the American Investment Council, an industry group representing private equity firms, stated that it is “concerned that these new regulations are unnecessary and will not strengthen pension returns or help companies innovate and compete in a global marketplace.”

The public comment period is open for 60 days from today or 30 days following publication of the proposal in the U.S. federal register — whichever period is longer.