There are two different legal formats all around the world, the European Union one, and the Anglo-Saxon one. Now it's time to explore the mechanisms of private equity within the European Union format. In the European Union, we have three different vehicles as we mentioned before: banks, closed-end funds, and investment firms. We’ll start our analysis with exploring closed-end funds for two reasons. The first one, closed-end funds are the most relevant vehicle playing the role to be a private equity investor in Europe. And closed-end funds are very useful to understand the mechanism of private equity investment, not only in Europe, but also worldwide. Closed-end funds are regulated by the financial services directive, and are regulated by the new AIFM as well: Alternative Investment Fund Managers directive, improving the quality of closed-end funds in the European Union. If you want to understand closed-end funds, we have to know that closed-end funds are made of three different pieces, three different players interacting all together. Three pieces are represented by the AMC (Asset management company), the funds, and the investors investing their money into the funds. So the start is not easy, it's a bit complicated, but we have to understand the three different pieces. Let's start with the AMC (asset management company). The asset management company is a financial institution approved and supervised by local supervisors, that would be the Bank of Italy, Bank of France, Bundesbank, or other local supervisors in the European Union, whose task it is to manage a fund, that means money of investors. The AMC is very similar to a consulting company because it's not a financial institution directly investing money, but it is just simply a group of people advising investors and managing the money of the investors. The European Union doesn't insert any constraints related to the shareholders of an AMC, so shareholders of an AMC could be any kind of player even if, in the market, we have evidence of three different, in a certain sense, families of AMCs: AMCs owned by banks; AMCs owned by private individuals, that are named boutiques of private equity; and AMCs owned by states. The last aspect is related to the fact that an AMC doesn't invest money, but every time an AMC is going to launch a fund, that means is going to start the managing of money of other investors, the AMC has to invest at least 2% of the value of the fund. That's quite important to generate a sense of commitment between the asset management company and the size of the fund itself. The second player, the second piece of the entire picture, is related to the closed-end fund. To understand what a closed-end fund is, first of all, we have to understand what a fund is. A fund is just simply a common pool, that means a banking account, in which investors can put their money all together. From the moment in which investors put their money into a fund, they automatically lose any right to have a tailor-made management of their money. They decide to do that because by putting all the money together, they can benefit from a higher diversification, coming from the common pool and they can benefit from higher economies of scales coming from the fact a lot of money coming from different investors is put all together. From the moment in which an investors invests his or her money into the fund, he or she receives a certificate that represent the amount of money that investors decided to invest. Funds can be open-end or closed-end. Funds are open-end when investors can enter, and they can exit from the fund whenever they want. Funds are closed-end when investors can invest only at the beginning of the fund, and they can exit only at the end. Closed-end funds are designed to manage private equity. Because for the fact investors that can invest only in the beginning and they can exit only at the end, it means the asset management company doesn't have any pressure to manage liquidity, and as you know, liquidity is a problem in private equity because private equity is not public equity, so it's very hard for the fund to exit from investment of private equity. The last aspect is represented by investors. Investors are people putting their money into a fund because they trust in the capability of the asset management company. Who are investors? There are no constraints coming from the law, but empirical evidence coming from the market says that typical investors in closed-end funds are high net worth individuals, banks, insurance companies, pension funds, corporations, and/or states. That means big investors really able to face a very risky and complex investment like private equity. The last aspects: asset measuring company, closed-end funds, and investors altogether represent the mechanism of closed-end fund investing in private equity. A fundamental rule is that a closed-end fund can invest only the amount of money received by investors. That means by law, a closed-end fund cannot raise money through debt That means the closed-end fund cannot leverage the investments.