Your sentiment is right but your reasoning is wrong, Colin.
If private equity investment managers were genuinely delivering alpha, the sins of the industry would (or should) be forgiven. The truth, though, is that private equity investment managers--including buyouts, venture capital, and especially real estate--have generally delivered zero or negative alpha, and it's damned galling to suffer illiquidity, hidden fees, flamboyantly high non-hidden fees, and sheer arrogance on top of negative alpha.
The problem isn't that the industry used to be confined to "the smart money": it's doubtful that "the smart money" ever invested with private equity investment managers. If the capital invested with private equity investment managers had been smart money, we wouldn't have amassed 35-plus years of evidence showing negative alpha. For two annotated bibliographies of independent academic studies of private equity investment manager returns--both pro and con--see http://www.slideshare.net/casebrad/updated-summary-of-academic-research… and http://www.slideshare.net/casebrad/bibliography-on-public-and-private-r….
The problem is that private equity has always been the segment of the investment industry in which it has been legal to report false investment returns. I don't mean that private equity investment managers systematically overstate the value of their investments--although there's evidence of that, especially when they're in the process of raising the next fund. What I mean is that private equity investment managers systematically understate the volatility of their returns and their correlation with other asset returns, which means "the smart money" has always been able to delude itself into thinking that private equity returns offer greater diversification benefits than it really does.
On top of that, private equity investment managers selectively report their performance--and, even then, rarely report performance net of fees--to promote the false idea that their returns are better than they really are.
Given those problems, I don't think even universal adherence to a GIPS-like system would be enough. Private equity investment managers would still be reporting returns based on appraised values--which means false values that systematically understate volatility and correlations--and therefore would still be able to claim false diversification benefits.
The only answer is to spread the word that private equity has, for several decades, consistently delivered negative alpha to its supposedly "sophisticated" investors.