US$20bn cash resources managed with impressive investment management framework

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US$20bn cash resources managed with impressive investment management framework

Published: Feb 2025

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Xiaomi Corporation

Peter Zuo

Group Treasurer

Xiaomi Corporation was founded in April 2010 and listed on the main board of the Hong Kong Stock Exchange on July 9^th 2018. Xiaomi is a consumer electronics and smart manufacturing company with smartphones and smart hardware connected by an internet of things platform at its core.

The challenge

Xiaomi’s treasury team manages nearly US$20bn in cash resources, ensuring the smooth operation of the company’s global business and maximising financial returns through strategic investments.

The treasury team faced multiple challenges in balancing the security, liquidity and profitability of funds:

Complex business lines and uncertain funding needs – Xiaomi’s diverse business operations and unpredictable funding requirements demand efficient capital turnover and optimised investment returns, all while maintaining sufficient liquidity to support stable business operations.
Low risk tolerance – although long-term financial products can enhance capital returns, short-term fluctuations in the net asset value may negatively impact Xiaomi’s financial statements, requiring a cautious investment approach.
Rapid market changes – the team needed to navigate a rapidly evolving market influenced by factors such as US interest rate hikes. However, the corporate decision-making process is often less agile than market movements, posing a challenge to respond swiftly.
Regulatory and operational considerations – financial investments have implications for corporate accounting rules and tax planning, requiring collaboration across multiple departments.

The solution

Despite encountering these significant challenges, the team successfully established an investment management framework that balances risk and return considerations.

The team accurately forecasts and deploys strategies for short-, medium- and long-term cash flows across different countries and currencies, matching them with appropriate financial products. A mechanism is in place to evaluate the comprehensive effects of foreign exchange and interest rates, optimising currency distribution.

Macro market research guides the diversification of asset allocations to maintain a balanced investment portfolio. By combining macroeconomic analysis with expectations of monetary policy shifts, the team maintains unified control over investment portfolio durations.

Regular investment committee meetings provide strategic guidance, while the treasury department executes operations within authorised limits.

The team maintains close communication with financial institutions, continuously monitoring macro and microeconomic data, and regularly produces detailed analysis and proposals.

The portfolio includes a wide range of financial products, such as plain vanilla deposits, bonds, equities, wealth management products and money market funds, allowing for timely adjustments based on market conditions and internal requirements.

The team also conducts scenario analysis – including baseline, grey rhino and black swan scenarios – to identify potential risks and performs stress tests that predict future fund returns and volatility. Weekly reviews of market conditions and investment product performance are conducted, supported by regular communications with financial institutions.

The team also evaluates, not only the absolute returns, but also the excess returns above appropriate baselines. Additionally, they compare the investment performance with similar strategy products from investment institutions and comparable companies. They also monitor the maximum value at risk (VaR) of the investment portfolio under extreme market conditions, and adjust the asset allocation ratio promptly when VaR exceeds management targets whilst also evaluating impact on other areas such as accounting, tax and ESG considerations.

Best practice and innovation

This year, the group’s treasury faced significant pressure on returns. US dollar interest rates declined due to rate cut expectations, while Chinese regulations halted manual interest compensation, reducing RMB deposit rates.

To offset these losses, treasury quickly devised a strategy, and its success was driven by:

Expertise – the team’s knowledge of product risk-return profiles and continuous communication with financial institutions enabled quick, data-driven decisions.
Efficient process – the investment committee system ensured fast decision-making and smooth communication, allowing treasury to act swiftly within authorised limits.
Collaboration – strong internal communication and support from finance, legal and other departments facilitated seamless execution.

Key benefits

Process efficiencies.
Return on investment (ROI).
Increased automation.
Risk mitigated.
Improved visibility.
Manual intervention reduced.
Increased system connectivity.
Future-proof solution.
Exceptional implementation (budget/time).

The Adam Smith Awards Asia are the industry benchmark for best practice and innovation in corporate treasury. The 2024 awards attracted 406 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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