Welcome to part two of our course. We know everything now about private equity. We know what’s the business of private equity. We know the reasons why a company would use private equity. Now it's time to enter the world of private equity investors and discover who are they, and in which way do they work. Because coming from the very first lesson, we just simply said private equity investors are financial institutions doing just that. But now it's time to discover what are their characteristics and which way they are regulated. It is not an easy job, because the world is wide, and we have to discuss about regulation. It could become very difficult to select one country or to select another one. But in private equity, we are lucky, because what we have to learn is that all around the world we have evidence of two different formats regulating private equity investments. On one hand, we have the European Union format regulated by the directives of the European Union. And on the other hand, we have the so-called Anglo-Saxon format, which is regulated by the laws of the U.S. and U.K. where private equity was born. When we say these two formats are formats, it means that they are not just simply applied in the European Union, and in the U.S. and U.K., but they are also used in other different countries. For example, if we talking about the European Union format, it is also used in Brazil, in Turkey, and in Russia. They took inspiration from the European Union format. On the other hand, talking about the Anglo-Saxon format we have evidence of application in India, in Australia, in and Commonwealth countries. Yes, we have evidence in all these countries. That's great, in a certain sense it simplifies our job. Let's start with the European Union format. If we want to understand the regulation of a private equality within the European Union, we have to explore the two big directives regulating the entire financial system, because what is important to understand about Europe is that the ideology in Europe is private equity is a financial service. For this reason it’s regulated by the directive regulating the entire financial system. We are lucky because in Europe we only have two directives regulating the financial system: the banking directive and the financial services directive. The main concept behind the two directives is that the financial system has to be organized with a right balance of efficiency and stability; while the other fundamental rule is that any kind of financial institutions starting to operate in the financial system has to receive an approval by local a supervisor, or by the European Central Bank, in the case of banks. Financial institutions, after the approval, can sell their service, and they are supervised, again, by local supervisors like the Bank of Italy, the Bank of France, Bundesbank, or the European Central Bank in case of banks. If we talk about a private equity, three different entities can be a private equity investor. We have time to investigate them, but it's quite important to have in mind that only three entities can invest in private equity or can act as a private equity investor. The three entities are: Banks, as banks are universal and they can deliver any kind of service in Europe; Closed-End funds that are in perfectly designed to be a private equity investor; and last, investment firms. So there are three different legal entities. If we turn the page and start exploring the Anglo-Saxon format, the one in the U.S. and U.K., we discover that the fundamentals are completely different. In the U.S. and U.K. case, private equity is not a financial service, but it's an entrepreneurial activity like managing whatever kind of company. It doesn't mean that there is not an involvement of the financial system. But I simply mean private equity is an entrepreneurial activity. That means if we wanted to understand how private equity works, we have to combine the common law we have in the U.S. and U.K., ad hoc fiscal rules, and special laws that are voted to regulate the private equity system. The other aspect that has to be clarified is that in the Anglo-Saxon format we do not have the supervision of a supervisor as there is in the European Union. These two different formats are quite relevant to understand the functioning of private equity system all around the world. For a local player, the evidence of two formats is not so important. If you are an Italian private equity investor, a French private equity investor, or a German private equity investor, and you act at a local level, you only have to apply the European Union format, just like if you are a U.S. private equity investor and you want to invest in the U.S. On the contrary, if you are a global player and you operate in different countries, having two different formats is quite important because in some cases you could prefer to use a European Union format, and in other cases you may prefer to use a U.S./U.K. format. The knowledge of legal entities is not just simply a legal matter, but it really becomes a business matter of private equity investments.