The arrival of the euro looks set to create new opportunities for asset managers wishing to exploit the growing market for institutional cash management products.

Those companies with established institutional money market business, such as BNP Gestions, are looking at the new euro market as a way to broaden its existing offering. With more than $20bn of assets under management in money market funds, French banking group BNP is one of the market leaders. Up to now, its business had been targeting large corporates and institutions in a number of domestic markets, with funds denominated in various currencies, including French francs, sterling, US dollars, and Spanish pesetas.

The euro represents a natural move in this kind of business," says Georges Engel, head of European sales at BNP International Asset Management. "It will help us develop an international approach. It is logical and I would even say easy for us to do this." BNP's first institutional money market euro product will be a euro-denominated compartment in its AAA-rated InstiCash umbrella fund, domiciled in Luxembourg. There are existing compartments in sterling and US dollars.

Engel has started to see a number of enquiries from potential new clients, both from countries with an established money market fund culture, from continental European countries, and from countries with an established asset management culture, such as the UK and Ireland.

The new euro products have the potential to be strong entrants to the market, according to Engel. "The range of securities you can invest in is wider than with domestic money market funds. This will allow you to give the best guarantee in terms of quality of assets."

London-based AIM Global Advisors is also finding increased interest in euro cash management products, and will be launching a euro money market fund by the end of the year. "Large corporates generally appear to be unprepared for the euro," says Marc Doman, head of sales and marketing at AIM. "We will be providing an easy solution for a problem they did not realise they were going to face."

AIM points out that the opportunity for consolidating assets is one of the biggest advantages that the euro will provide to large investors. As funds across Europe will be accountable in euros, as well as in legacy domestic currencies, it will be possible for companies and institutions to pool their assets into one centre. " We can show them how to get a return on funds that previously were either too widespread or not of sufficient value," says Patrick Hinnell, sales manager. This will be a major strength as treasurers are increasingly seeking to improve returns on their cash components. And although treasurers are under pressure to diversify, they are not incurring additional risk by centralising their relationship with one money market fund manager, since such funds are already diversified in terms of investment base.

The AIM euro money market fund is also going to be able to provide high liquidity at a higher return than normal, say Doman and Hinnell. Although overnight liquidity is expected to be commonly available for a 20 basis point premium against the T+1 rate, AIM is planning to do better than that. Around 50% of the fund will be kept in the overnight market, to guarantee liquidity for its investors, but its fund managers maintain that they will be able to pick up some yield on the liquidity.

The fact that corporates and institutions will be able to consolidate their cash management relationships is also going to present non-bank providers of financial services with new distribution opportunities, according to Peter Knight, head of institutional cash funds at Fidelity.

As traditional banking relationships change, with large corporates and institutions further consolidating their European business, Knight sees a major distribution opportunity - independent providers should be able to make deals with banks to provide a new range of euro products.

Knight stresses that there will be few comparable alternatives to money market funds after January 4: "There is no euro interbank market; no near-bank products, like CDs or corporate paper, and Euroclear and Cedel still offer only next-day clearing," he explains. As currency risk is eliminated from the equation, credit quality and yield, rather than country differentiators, will become the deciding factors for new products.

Security is a also major consideration drawing investors to cash management products, points out Knight. The new euro scene is something of an unknown, so potential investors are being attracted by the high degree of security offered by euro-denominated money market accounts. This is why funds will be striving for AAA ratings. And because corporate treasurers like to keep things simple, the fact that a euro money market fund will be easy to use is another major plus.

For Fidelity, Knight estimates that the UK will be the best market for euro cash management accounts in the short term, saying that most enquiries so far have come from the UK. However, he points out that Germany and France will be interesting, and that the Spanish market is "growing tremendously".

For State Street Global Advisors (SSGA), the advent of the euro was one impetus that encouraged them to get into the cash management market in Europe. SSGA had long had a very significant cash management business in the US, based around a range of US funds of various sorts. "We want to develop a cash management business in Europe similar to our existing operation in the US," says Nigel Wightman, SSGA managing director in London. "As an organisation we are already a leader in global custody, fund management, and have one of the largest securities lending programmes. All of these business contain a cash management element."

To make a quick entry into the European market, the company has acq-uired a range of European wholesale cash management funds from Rothschilds, with a total of $250m under management. In a Dublin-based um-brella, SSGA has cash management funds denominated in US dollars, sterling, deutschmarks and Canadian dollars . Overall, SSGA has more than $133bn in money market assets.

The DM-denominated funds will be converting to the euro at the beginning of January. Because the SSGA cash management funds are organised in a master feeder structure, with the US and European sourced funds combined in a single pool of assets, managed out of the UK and Boston, the funds will have to operate under the rigorous US strictures for money market funds. This provides the SSGA European products with an extra element of security for investors. Since there are no similar rules governing money funds outside the US, other Europe-based funds do not have to comply with such regulations.

At ABN-AMRO, the emphasis is firmly placed on quality of investment. The Dutch bank will be launching a euro fund as part of its $300m Global Liquidity Fund, based in Dublin. "In Europe, security and liquidity will be the most important aspects of the fund. The level of return will be comparable to other AAA-rated funds," says Gijs Kaars Sijpes-teijn, head of liquidity management services at ABN-AMRO. As funds vie for AAA ratings, differentiation in terms of return is likely to be slight; to offer a much better return, Sijpesteijn believes it would be necessary to look at investments with lower ratings, which is not what potential clients want from money market funds.

ABN-Amro, as a eurobank, is anticipating a launch some time during the first week of December, with the fund initially denominated in Ecu, to be changed over to the euro. This offers clients an opportunity to invest ahead of the changeover date, thus avoiding forex risk. Sijpesteijn expects initial interest to come from US and Asian corporates with European outlets, as well as some Europe-based corporates.

In his view, the euro will definitely increase interest in money market funds. "At the moment, the level of knowledge within Europe of money market funds is very limited. They are not endorsed by government authorities, and if governments do not openly endorse them, then it is difficult to market them," Sijpesteijn says.

He points out, the euro will create more transparency as bank rates across Europe will be directly comparable and forex risk is flattened."