IBM made headlines in the financial and tech sectors last week with a quantum-powered bond trade it helped HSBC execute.
IBM stock jumped as markets reacted to a milestone use case for the cutting-edge tech. Now, the company has revealed the results of another partnership, indicating more potential for quantum computing to shake up markets and investing.
On September 29, IBM and asset management giant Vanguard announced the results of a study on quantum computing applications for portfolio optimization.
Their research revealed that quantum-classical hybrid workflows can rival, and in some cases outperform, conventional ways of solving large-scale optimization problems. This could change the way asset managers construct financial portfolios and bolster investor returns.
“These technologies enable us to provide clients with solutions that are personalized, intelligent, and secure, helping them achieve positive financial outcomes,” a statement from Vanguard read.
Executives at both companies said they believe that the combination of quantum and classical computing technologies has the power to significantly disrupt traditional financial services.
Speaking with Business Insider, Vanguard CTO Michael Carr and head of municipals Paul Malloy laid out their vision for how the industry might be impacted as quantum technologies continue to evolve.
The joint study took a common finance problem—portfolio optimization—and recoded it into a quantum problem to determine whether the system could generate the same results as a traditional computer.
“In quantum computing space, we can run exponentially more scenarios and look almost beyond the current set of data, the current set of patterns that we’re able to discover,” Mallow said.
They explained that the experiment replicated real-world conditions, revealing an ability to detect correlations and interactions between the bonds in the portfolio.
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“Portfolio construction is complex,” Carr said. “And as the size of the portfolio grows linearly, the complexity of the optimization grows exponentially.”
He explained how the team began with a 30-bond portfolio but soon was able to grow that to a portfolio of 109 bonds using quantum computing.
“[With the] combination of a progressively stronger algorithm and progressively stronger hardware, we think we can get to some usable insights,” Carr said, adding that he thinks they will be able to quadruple the size of the portfolio within the next 18 months, demonstrating more results.
While Carr acknowledged that an inflection point for quantum adoption in finance is likely inevitable, he said it’s difficult to pinpoint exactly when it will happen.
He added, though, that he thinks both large and small firms will be maneuvering to take advantage of the fast-growing quantum computing technology. In his view, quantum providers will likely go to market in a similar way as their peers who pioneered the cloud computing movement.
“Cloud computing has sort of been a great democratizer,” he said. “It’s given everybody access to great infrastructure, great tools. I think that’s how IBM and other providers of quantum are going to go to the markets.”