RepoToronto

Instead of computing daily, weekly, monthly returns using market prices (which in many cases would be impossible to do), they estimate those prices.  If the portfolio value were, say, $1,000,000 on 2013/1/1 and $1,120,000 on 2013/12/31 (with no pricing in the interim), do you think it’s more likely that they’ll choose monthly values of $1,010,000, $1,020,000, … $1,110,000, or monthly values of $1,200,000, $990,000, … $1,400,000?  The latter will have a much larger standard deviation of monthly returns than the former.
What they actually do, in short, is guess.  And they probably bias their guesses toward lower return volatility than higher return volatility.