Fewer hedge funds shut their doors in 2003 than the year before, as investors poured money into the exclusive investment pools, and rising markets pulled average returns back into double digits.

With the exception of market-timing specialists such as

Veras Investment Partners

and a $185 million arbitrage fund run by the

Clinton Group

, most U.S. funds that didn't make it through the year had only a few million dollars and either failed to raise substantial capital or surpass return rates that would allow managers to start taking out their big profit shares.

"Obviously this year -- in terms of performance -- was a much better year for the hedge fund industry as a whole," said Jacob Schmidt, director of hedge fund research at Allenbridge, a London consultancy. Average hedge fund returns were about 13% by the end of November, according to Tremont Capital Management. Complete year-end totals will be released next week.

While the average hedge fund return probably won't hit 15%, investors poured more money into them in 2003 than ever before, according to Tass Research, a unit of Tremont Capital Management. Through the end of September, hedge funds saw $45.4 billion in new investment, compared with $16.3 billion in 2002 and $31 billion in 2001.

But money didn't mean success for every player in the increasingly crowded hedge fund business.

Reports from the largest hedge fund performance databases suggest about 600 funds shut down or merged with other funds, which comes to about 9% of all hedge funds worldwide, according to the Tass unit. The database that feeds information to the Credit Suisse First Boston/Tremont Hedge Fund Index saw 242 funds close this year, while 2,562 funds reported their monthly results, said Stephen Jupp, who oversees the index.

At HedgeFund.net, another large performance database, 211 funds have been dropped since last May, said Ankur Jain, an associate at the New York company. The Web site now has about 3,000 funds reporting monthly results.

The Tass database lost 281 funds in 2002, about 13% of its total, and extrapolated that into an estimated 700 funds that shut down worldwide.

But Jupp said final estimates won't be available until April, after funds that stopped reporting are contacted and researchers sort through information collected at the end of the year.

So the 9% figure is really only a best guess for the loosely regulated, often secretive hedge fund industry. Only about half of the world's 5,000 to 7,500 hedge funds -- if that -- are tracked by databases, and U.S. financial watchdogs don't require hedge funds to register as investment advisers, though most do.

Additionally, some funds stop reporting results because they have raised as much money as they planned to, and no longer need to attract investors with their return figures.

Research by Columbia University professor Franklin Edwards and doctoral student Jimmy Liew suggested that most hedge funds have a peak life of about three years, and that funds with more than $100 million under management are able to survive longer than smaller funds.

"It's still not the entire universe of hedge funds, because there's no regulatory requirement to report to a central source," Jupp said. "No one knows exactly what the size of the industry is. You've just got to bear in mind the limitations of the data."

Schmidt was more succinct.

"Even the range of numbers

of hedge funds -- 5,000 to 9,000 -- that's all rubbish," he said. "Do I count every share class? Every offshore version of a domestic fund?"

Van Hedge Advisors, a Nashville, Tenn., company that tracks the hedge fund industry, said 215 funds it kept tabs on went defunct last year.

Thirty-two were aggressive growth funds -- 10.6% of Van's sampling for that strategy, followed by 31 market-neutral arbitrage funds, 7.5% of those Van tracks.

The least-surprising results were found among hedge funds that specialized in market-timing, said Jain at HedgeFund.net. While the strategy, which involves exploiting price differences in mutual funds that trade securities in international markets, remains legal, its prominence in investigations of crooked mutual funds prompted many funds to shut down and investors to withdraw their money.

Of the 60 market-timing funds on that database in May, only 15 continued to report results at the end of the year. Van said 29 of the 223 market-timing specialists it tracked went under.

"It looks like a pretty normal attrition rate," Jupp said of the initial results at Tass-Tremont. "We're not seeing a whole spate of closings, and with markets generally being up for the first time since 1999 and hedge funds bringing in more steady returns, it's certainly been a better year than 2002."