Retail investors are embracing publicly registered “liquid-alternative” mutual funds and ETFs at an astonishing rate, according to a recent survey conducted by Citigroup’s Prime Finance Unit. In the U.S., Citi projects that retail demand for liquid-alt funds will increase assets under management from $259 billion in 2012 to $779 billion by 2017 (a CAGR of 25 percent). The total global market for liquid-alt funds is expected to reach $1.3 trillion by 2017, and more than 70 percent of this will be retail.

Independent Registered Investment Advisers (RIAs) are driving liquid-alt growth. As Citi notes: “These advisors have an open architecture approach to product and are active in supporting new (liquid-alt) fund launches.”

Who will manage the rapidly growing pool of liquid-alt capital? Citi says money management groups will recruit successful hedge fund managers, who then will leverage the same research and strategies they offer institutions through less liquid and more expensive privately offered hedge funds.