Professional managers are fully awhere of the transient and random nature of the returns they create, whether actively or passively, and are real human beings with the behavioural biases and oddities that characterize us as a group. Thus, when we are presented with a month in which we do very well, we are aware that the future will likely hold periods of underperformance. Furthermore, it is likely that the month following a good month, the month during which we are preparing a formal summary of the prior returns that we know were good, we are more likely to underperform that recent history than outperform it. Nobody wants to write the letter:

Dear Investor, last month we did very well. However, as I write this I know that we're doing less well, so don't get too carried away with your newfound wealth that I've already lost.

Furthermore, a manager who is confessing to a particularly dire prior period of returns would greatly like to write:

Dear Investor, last month we did badly. However, as I write this I know that we're doing very well, so please do not distress too much over your losses, which have already been erased.

For an example of this latter tendency, I can simply refer to my prior post on the September, 2009, performance of our NASDAQ-100 futures trading system. Both these forces together, provide the incentive for outperforming managers to report their returns promply and for underperforming managers to linger a while before sending the letters out of the door. Thus, we can explain the tendency observed in our analysis of the incremental updates of the BarclayHedge data.