Quantum Computing, AI, and Asset Management


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Quantum computing capabilities represent a step change for the global economy. In October 2019, Google AI Quantum represented that their quantum processor worked out a classical compute test problem in an astonishingly short time by running calculations more than 3,000,000 times faster than the world’s most advanced supercomputers. If, and as, this technology becomes commercially available, the number of operations per second human civilization is capable of will increase not just by an order of magnitude, but orders – and likely many.

It Can’t Be Done…or Can it?

We already have examples of the impressive scale of exponentially increasing processing power using pre-quantum processers. Consider SpaceX and the reusable booster. When Elon Musk started SpaceX, he was derided by some space industry veterans for even suggesting a booster could be recovered and reused, much less gently landed on a drone ship. Since a booster reenters the atmosphere at something greater than Mach 25, old hands with decades of rocketry experience knew that the precise firing of thrusters and boosters at just the right times, in just the right synchronicities and combinations, was impossible. A soft touchdown just could not be realized. Despite this belief, SpaceX prevailed in their attempt to create the technology. But how—and why now? Primarily because the computing power Musk and his team brought to bear on the issue was greater than ever before realized in the history of the problem. (And a bit of maverick, outsider-naiveté based rejection of the conventional wisdom claiming a solution wasn’t possible didn’t hurt.) SpaceX solved the impossible with classical – albeit very advanced – computing capabilities.

The first key understanding we must have upon entering the quantum era is that there are innumerable unforeseeable emerging applications, technologies, and capabilities that will result, and consequently, once unsolvable problems will be cracked.

Thinking Outside the Quant Box

At Green Alpha Advisors, we are in a unique position to envision the near-term outcomes within our industry of asset management feasibly possible with quantum computing capabilities. Our economic thesis and stock selection processes are somewhat outside of the mainstream, and thus far, have not lent themselves to traditional quant-based, formula-ready duplication methods. Several vendors and potential partners have approached Green Alpha, and together we have attempted to find a rules/algorithm-based way to replicate our processes. To date, none has worked sufficiently, though in a quantum world, that could change.

To clarify why, let’s briefly go through Green Alpha’s research processes. Our top-level criterion—the factor that provides the go/no-go decision point for whether to research a given company and its stock—is an internal determination of whether the company on balance, as an aggregate of its overall business activities, does more to stabilize or destabilize the world. We define impact investing as sending signals to the market that only companies providing remedies to humanity’s biggest problems have value (and so decline to purchase companies we define as destabilizing as, by definition, they will make poor long-term investments).

One might say, “That’s not hard; just plug in ESG scores and that will be perfectly quantifiable and replicable by an algorithm.” Except it isn’t that simple. ESG scores are not a reliable way to determine whether a company is helping advance sustainable economics or working to crush it. For example, MSCI ESG ratings give both ExxonMobil and Chevron “BBB” or ‘high average’ ratings, and oil super major TotalEnergies is rated “A” by MSCI for its ESG activities. Toyota—responsible for driving enormous oil demand and notoriously resistant to a transition to electric vehicles—is an ESG darling, based largely on its very favorable ESG scores created by third-party asset management vendors. In the current ill-defined ESG landscape, there is no way to reach a ‘stabilizing or destabilizing’ conclusion based on these ESG ratings. Consequently, Green Alpha scrupulously evaluates each company on its own merits to determine, on balance, whether a corporation’s net activities result in an economy working well for everyone’s benefit.

The process involves much work, and requires the application of many heuristics that to date have been resistant to algorithmic reduction. As far as we have been able to determine or have been shown, no algorithm has yet reproduced one of our strategies. The outputs are just not there.

It’s Not Just About Power

But what if three or five or 10 algorithms, each optimizing along a different axis, could run in parallel? What if each of these individual algorithms could be 10 times more powerful than any that preceded it? Though not quite there, a machine capable of such processing could very well learn to replicate Green Alpha’s research processes, and even apply our philosophies to every publicly listed stock in the world to derive a kind of super strategy. An equities strategy reflecting all the companies that will define, and indeed constitute, the Next EconomyTM 10 and 20 years hence would potentially be the highest impact portfolio investors could own in terms of driving capital towards that economic transition. It may also provide a clear path to competitive returns as the myriad innovative solutions and brilliant approaches uncovered by this quantum-driven algorithm gain market share, and eventually grow to largely constitute the economy itself.

Of course, huge computing power alone won’t result in this portfolio-building juggernaut. Each algorithm will require a long period of training, and the combination of algorithms, longer still. Before the quantum-based portfolio construction system could completely take over as Green Alpha’s Chief Investment Officer, we would need to operate as a centaur providing inputs and evaluating its decisions over a period of time. Even so,  it could replace us; we hope it will.

Green Alpha’s portfolio construction approach depends on many inputs that have not been formally or commercially quantified yet, making it resistant to automation so far. Many other equities strategies, most obviously index funds, have been run by algorithms for years. The simpler the strategy, the easier it is to automate. Automation ultimately will come for the whole asset management industry, but the more complex strategies will be among the last to hand over the keys to the machine. Nevertheless, no amount of complexity will be too great for a properly constructed and optimized series of quantum algorithms.

Quantum Computing Dreams Becoming Reality

Indeed, one of Green Alpha’s dreams is to work with a leader in quantum development to begin the process of creating our own obsolescence. DeepMind, OpenAI: Green Alpha would love to hear from you!

This may all sound a little whimsical, but it’s deadly serious. Channeling capital to the highest-impact, most-scalable, and fastest-growing solutions might make the difference between innovation outrunning the climate crisis or not. Quantum computing will be a key tool in developing and optimizing these maximum-impact portfolios.

Every industry has its own transformational tale to spin about what the quantum computing revolution will mean. One of Green Alpha’s tasks is to look at companies across industries to determine who is planning in advance of this trend taking off, and then get client dollars in front of those compelling investment opportunities. It may seem premature but staying ahead of the trend is where investment gains come from.

The importance of the quantum computing revolution is difficult to overstate. Any asset manager or executive in virtually any industry who considers this an over-the-horizon event to worry about later is risking their own obsolescence. The quantum computing world is already beginning to emerge.

Green Alpha is a registered trademark of Green Alpha Advisors, LLC. Green Alpha also owns the trademark to “Next Economy.” Nothing in this blog should be construed to be individual investment, tax, or other personalized financial advice. No mention of a publicly traded stock should be considered a recommendation to buy, sell, or hold any particular security. At the time this blog was written, Green Alpha did not hold any client assets in shares of the following companies: Google (GOOG, GOOGL), TotalEnergies (TTE), MSCI (MSCI), ExxonMobil (XOM), or Chevron (CVX).