Paul, I've observed that active fund managers tend to be people looking for easy money. They are attracted to the industry out of greed, and not to build a wining portfolio strategy. So I believe they tend to underperform for a variety of reasons, but mostly I feel it is due to cost and marketing reasons.
The mutual fund game requires marketing, scale and fees. All these work against performance. Marketing is a big problem because the fund must tell a story that attracts investors, and I think this tends to create nice sounding strategies which attract assets, but suck as a portfolio, due to churn costs. Slick salesmen and high fees make for a profitable fund, not buy wisely and hold 30 years, selling nothing. Scale means even if you fund a hidden gem, your own need to own it will drive the price up because you need to convince prior investors and owners to sell. So like Buffett, when he has a target acquisition, he still must acquire the good company. Management and investors in a good company know they own something good, since they were there from the start and accordingly will ask a high price, which also can drag performance. So even good research may fail precisely because you need to buy the issue at a good price to make a good return. Transaction fees also drag on performance, but these factors are well understood. But again, marketing the fund require a periodic update and new stories to attract assets under management. I find this generates unneeded churn as the managers feel a newsletter about them not buying or selling anything makes a poor marketing piece, so their fees will seem unnecessary (which is exactly why indexes do so well...buy and hold, low churn works).
Since people are impatient and easily shmoozed, I found the culture of active fund manager teams to be far from what would actually produce good long term results. The drive fast cars and chase short term big wins. Traders suck as investors, precisely because of this typemof personality. Investors must be very patient, like reading balance sheets, checking details out. Just like in real estate.
This does not necessarily mean an individually managed portfolio must always underperform. Some endowments with good management have outperformed the market over long periods. It is just hard. Few have the patience and training to research deeply enough, etc. People that talented make money other ways, like creating Vanguard or BH, or by becoming a CEO themselves, so the pool of active fund managers is actually a bit talent poor. The talented people I met in business school are mostly building companies or working for them as top management, because it,is more challenging. Fund management is actually pretty boring, so I found people into it are doing it for the money, not because it is their passion. They few that are, tend to do ok.
Just my 2 centts.
PS Just as good management matters in real estate, it also matters for individual stock investors. This forum frequently advocates individuals buying investment RE purchases, over REATs, which are much more volatile in returns as well. So why oppose individual stocks so strongly? Data suggest 20 or so stocks will do fine relative to an index so while indexing is better, I dont understand the heavy face punching, personally. Active trading...sure, deserves a facepunch, but a diversified portfolio of well researched individual stocks...why not.