Vanguard, Fidelity, and T.Rowe Price, the three largest TDF managers respectively, control more than two-thirds of the market. Add J.P. Morgan and BlackRock, which round out Cerulli's top five managers, and more than 75 percent of the market is spoken for.

Sub-advisory roles for managers are limited with the top TDF providers. Half of the providers surveyed by Cerulli earlier this year said they deploy non-affiliated funds within open-architecture TDFs. Some TDFs allocate as much as 75 percent of assets to non-affiliated managers.

But at the top of the market, non-affiliated fund managers need not apply for work. Among the top five providers, four include only proprietary funds.

"While managing a target-date sleeve can present opportunity for managers with a best-in-class strategy in a specific asset class, the scope of this opportunity may be overestimated," Cerulli's analysts say.

Standalone funds still lead 401(k) menus

An unnamed large asset manager told Cerulli that winning defined contribution business with standalone mutual fund offerings is a strategy of increasing futility, given the surging TDF market.

But Cerulli disagrees with the perspective that asset managers will be "boxed out" of the 401(k) market if they can't grow target date assets in proprietary funds or in a sub-advisory role.

For all of TDFs' growth, standalone investment options still dominate 401(k) menus, notes Cerulli.

Of the $4.7 trillion in 401(k) plans, $3.1 trillion is held in standalone investments, or three times more than TDFs. For perspective, Cerulli says that standalone 401(k) investments are larger than the $2.9 billion defined benefit market, and more than twice the size of the combined $1.4 trillion endowment and foundation markets.

Equity funds account for nearly $2 trillion of standalone investments. Fixed-income accounts for $366 billion, or nearly 12 percent of the standalone market.

Nearly 70 percent of managers told Cerulli that the best opportunity was with U.S. equity investments, and 53 percent said international equity presented the greatest growth opportunities.

Plan sponsors often favor passive strategies with U.S. large-cap equity and international equity funds, Cerulli says.

"Active managers come up against significant fee pressure in these sub-asset classes, making it difficult to garner asset flows," the firm says.

Cerulli advises active managers to establish track records in sub-asset classes that are not readily going passive, like small-cap domestic equity and emerging market equity funds.

A rising interest rate climate will also create opportunities for actively managed fixed income investments, Cerulli says. One asset manager told the firm that plan sponsors spend half the time evaluating fixed income funds as they do equity funds.

Sponsors also tend to add more standalone equity funds than fixed-income funds to plan menus.