Shareholders of private-equity behemoth Blackstone Group (NYSE:BX) can revel in one inarguable fact: Management is smart. And not just number-crunching, spreadsheet-monkey smart … I mean really smart. How smart? Smart enough to have taken the company public just weeks before the credit crunch came to life -- pocketing billions and leaving shareholders with performance a mere fraction of what it used to be.

First-quarter net income came in at a loss of $251 million, or $0.97 per common unit, down from the $1.13 billion earned in the same period last year (per-share comparisons can't accurately be made, as Blackstone wasn't a public company this time last year). Revenue took a grimacing 95% drop, to $68.5 million.

We all know the credit crunch has been a thorn in private equity's side, but a 95% drop in revenue? You bet. Blackstone derives a good chunk of revenue from performance-based fees on its investment funds; when the performance doesn't stack up, neither does revenue.

Blackstone frequently refers to a term called "economic net income," a nifty calculation used to measure net income excluding the impact of income taxes, non-cash charges on the amortization of intangible assets, and some compensation expenses such as non-cash equity-based rewards. Under these measures, net income posted a smaller loss of $93.6 million. (I prefer to call this calculation "what would have been left over for you poor saps had we ignored the IRS and before management continues its quest to become richer than Croesus," but, heck, long live accounting shenanigans.)

What's next?
Although handily off their March lows, shares are down no less than 43% since going public last summer. All investors want to know, of course, is when -- if ever -- private equity will regain its composure and get back to the megadeal glory days. That's a tough question, but it isn't hard to piece together a road to recovery that becomes a road to nowhere.

After Blackstone's recent squabble with Alliance Data Systems (NYSE:ADS), as well as other industry deals gone awry -- such as Sallie Mae (NYSE:SLM), United Rentals (NYSE:URI), and Clear Channel (NYSE:CCU) -- it's clear that the monster profits of the past several years were made during a far-from-ordinary investing climate. Earnings were distorted over the past few years by lax credit and eager sellers, much more so than during an average business cycle. It's not crazy to assume that we may never see such an attractive market for private equity again, and that prospect hangs over Blackstone and rivals such as Fortress Investment Group (NYSE:FIG) like an ax waiting to drop.

To be sure, Blackstone's managed funds -- which now stand at about $113 billion -- may get a nice boost once financial markets revert to a more rational state of affairs. But if you're looking for a return to the massive returns that propelled Blackstone into financial stardom, fuhgetaboudit.  

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