A New York Lottery Gamble

Are the investment managers at the New York Lottery way behind the last curve or way ahead of the next one?

The state lottery system is considering taking a page from the pension fund playbook and moving its $1.3 billion prize fund out of the safe haven of U.S. Treasuries and into stocks, bonds, real estate, and hedge funds, according to Bloomberg.

It hopes to double its annual return to 8 percent and help replenish the empty coffers of the New York state budget.

Either they think it's still 2004 or there's something they know about 2012 that the rest of us don't.

The lottery's director, Gordon Medenica, said the switch is something that's been under consideration for some time, and he promises they are "not going to be wild and crazy with investments."

The objective is to reduce the number of one-time lump payments to winners, which is how about two-thirds of the loot has been paid out recently. Winners more often opt for the lesser upfront payment, believing they can earn better than the 4 percent that government bonds pay. Lottery officials believe that if they can tempt more winners to opt for the payments over time, it will have more money available for education.

New York Lottery, which is the country's largest, is the only one among the big state funds to consider such a move. Last year it took in $7.55 billion and generated $2.56 billion for schools.

by Megan Barnett