In this paper, EDHEC emphasizes the need for the hedge fund industry to adopt a consumer (investor)-driven approach, as opposed to the current producer (manager) perspective, and we call for the emergence of new types of offering with characteristics better suited to the needs of institutional investors.

Using active bond portfolio management as an example, we present evidence that derivatives can be used by managers not only for generating and delivering abnormal performance, but also for packaging such performance in a form that is consistent with the modern core-satellite approach to institutional portfolio management, for which we explore both a standard static version and also a dynamic extension allowing for dissymmetric control of active mangement risk.