May 2, 2018

Embracing quantum computing may be a small step for asset managers but it would be a giant leap for investment decision-making, says a forthcoming report co-written by the US space agency.

Nasa worked with the Universities Space Research Association, an academic group, and Standard Chartered, the UK bank, to investigate the efficiency benefits that quantum computers could bring to investment portfolios. 

And yes, this is a massive edge.

Till now, such machines have been used mainly to solve problems related to data for machine learning and to improve the effectiveness of medicines. The paper will argue that asset managers can use quantum computers to create optimised portfolios, for instance by finding the perfect balance between risk and return. “People often say that quantum computing will dramatically disrupt all industries some time in the future — but it’s already here,” said Alexei Kondratyev, managing director for financial markets at Standard Chartered, who worked on the report. He said there had so far been little uptake among asset managers of quantum computers because of their cost, which starts at $15m. He expects much more use in the next couple of years as fund managers are able to rent computer firepower through the cloud. 

“It’s about gaining an edge,” Mr Kondratyev said. “These computers not only make quicker decisions, they also make more accurate decisions.” Quantum computers differ from classical super-computers by harnessing the power of sub-atomic particles to speed up processing. In certain scenarios, they are 100m times faster at solving problems than conventional computers. They were developed in the 1980s and have recently been used for more commercial purposes. Nasa and Standard Chartered have been running a research programme since the beginning of the year looking at their use in designing investment portfolios. The use of quantum computing in the investment industry has been considered for several years, with Marcos Lopez de Prado, who recently left Guggenheim Partners for quant specialist AQR Capital Management, one of its biggest proponents. 

Mr Kondratyev provided an example where quantum computers would come into their own. If an investment manager wished to construct a portfolio of 30 stocks from a universe of 60, there would be 100,000tn possible combinations. A quantum computer would be able to calculate the most appropriate line-up significantly quicker than a conventional computer. 

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