And $288 million is a lot to lose on one investment. Especially when it’s money that Canadians are expecting to retire on.

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Check out this sneak preview from the June issue of Report On Business Magazine, which arrives online at tgam.ca/r and in the Globe and Mail this Friday, May 25. Tune into The Lang and O'Leary Exchange on CBC News Network tonight (May 23) for an interview with Doug Steiner. Nobody likes losing every cent they have invested in something. And $288 million is a lot to lose on one investment. Especially when it’s money that Canadians are expecting to retire on.

It was early 2011 when André Bourbonnais, the head of the private investing group at Canada Pension Plan Investment Board, got the news that Citibank, EMI Group’s secured creditor, had just seized the music publishing company that CPPIB had started buying an interest in back in 2007. But Bourbonnais wasn’t at all shocked. CPPIB had already written down the investment.

The $288 million that had gone poof represented $17 from every one of the 17 million Canadians whom Bourbonnais was investing for. But in this game, as in so many others, it’s lose some, win some—tomorrow would be another day. Even Bourbonnais’s boss, Mark Wiseman, who is executive vice-president, investments at the Board, is philosophical about this sort of setback: “If we don’t lose money in investments, we’re not taking enough risk.”

And, in fact, $288 million isn’t a lot of money in Bourbonnais’s job. CPPIB made more than 30 times the EMI loss for its fiscal year ended March 31, and recorded a return of 6.6% on its funds. The place had $153 billion in assets as of Dec. 31 (that number grew to $162 billion as of March 31). And by the time I forget to slip on my Depends 20 years from now, CPPIB should be tracking close to half a trillion dollars under management, according to the actuaries.

We’d better hope they make the target. As countless politicians, think tanks and news stories have warned, Canadians are not saving enough on their own for their retirements. To make things worse, the tradition of company-funded defined-benefit pensions is eroding and, come 2023, Ottawa is going to make us wait longer for the Old Age Security benefit.

It all means the other basic federal payout for retirees—CPP—is under pressure to perform. So then—just where has that deduction on your paycheque been going all these years?

The model for investing that money has gone through a rapid evolution, leaving the sleepy world of government bonds far behind and culminating in something the CPPIB’s managers call “risk budgeting.” All told, CPPIB has emerged as one adventuresome investor.

It’s all run by investment professionals like Wiseman and Bourbonnais, guys who, for some mysterious reason, think it’s more rewarding to invest on behalf of the Canadian public than make far more dough on the other side of the Street. As a Bay Street professional myself, I want to know what makes these guys tick.

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CPPIB owes its existence to the bad old days of the early 1990s, when Ottawa was creaking with debt. The CPP obligations that the federal government had on the books amounted to only part of the fiscal shortfall, but it was a wakeup call nonetheless. Previously, the government thought it was enough to simply collect money from Canadians’ paycheques and invest it in federal and provincial bonds. It was a safe way to invest money, but also self-serving because it kept the money in Ottawa.

Back in 1966 when the CPP took effect, nobody really had a clue how much a national pension scheme would cost. The government made a best guess at contribution rates based on how much it was paying out. In this pay-as-you-go scheme, contribution rates were low. For the first 20 years, the CPP slice was only 3.6%.

But by 1994, Canada had suffered through one recession in 1990-91 and was heading for another slowdown. Government bonds didn’t look so good any more: Some bonds were barely selling at auction, and others had been downgraded from AAA to AA+ by Standard & Poor’s.

So just investing in bonds wouldn’t be enough. The future burden of the CPP, lumbering along with its fixed-income portfolio, stuck out like a sore thumb in each year’s parliamentary budget reports.