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MICHAEL BURRY PREFERS NOT TO DISCUSS THE FUND MANAGERS WHO HAVE invested with him. But when it comes to Chalkstream Capital Group and its CIO, Andrew Tsai, the California physicist-turned-hedge-fund-manager, who earned a fortune shorting the U.S. subprime market, makes an exception. “I found Andrew and his team to be highly intelligent, very engaged and very well informed as to their understanding of the space,” says Burry, who wasn’t always on the very best of terms with all his investors. Today, Burry manages only his own money.

Tsai needs to be exceptional. Chalkstream’s small client base consists almost entirely of hedge fund executives and partners at major banks and asset managers who have entrusted the New York–based firm with their personal capital. As some of the world’s top investors, they have high expectations — none more so than Tsai’s business partner, Peter Muller, a former proprietary trader at Morgan Stanley who left the bank last year and launched quantitative hedge fund firm PDT Partners.

Muller and Tsai founded Chalkstream in 2003 as a family office to run Muller’s money. From the start, though, they planned to attract like-minded capital and create a bespoke firm catering to sophisticated investors. The pair found clients who could stomach relatively high risk and volatility in exchange for the potential payoff from bold bets on unique opportunities. “We want to traffic in areas where there is not a lot of capital chasing for returns,” says Tsai in an interview at Chalkstream’s Midtown Manhattan offices in the Random House Tower, an address the firm shares with PDT.

Tsai and his 12-member team have caught some of the most interesting and profitable trades of the past decade. Despite Chalkstream’s impressive pedigree and investor base, however, its overall returns have yet to truly impress. But the firm is confident that it can hit a home run with its biggest bet yet: on Japan, the graveyard of many a brave fund. If   Tsai succeeds, Chalkstream will have lived up to its promise.

With $700 million in assets and a dozen significant outside clients, Chalkstream is a hybrid of family office and fund of hedge funds. When it isn’t developing its own investment ideas, it looks for one-of-a-kind managers like Burry and his former firm Scion Capital. Chalkstream’s fund-of-hedge-funds portfolio consists of 15 to 20 managers, and it keeps a second, less-liquid portfolio for major tactical — though not necessarily directional — bets and private-equity-type opportunities. The mix can vary, but the firm typically splits its assets about 60-40 between the two. Chalkstream charges an annual 1 percent management fee and 10 percent performance fee on the hedge fund portfolio, and a 15 percent private-equity-like performance fee for the illiquid portfolio.