The theory is wrong.

Perhaps you can do it for pension funds, although most pensions are government backed anyway.

But investors are taking a known risk. These are all sophisticated adults. If a bank wants to sign a contract that they will lose money if the company goes under, who is Warren to say they shouldn't? They're getting well paid for that risk, they know it's a risk.

If you ban debt-funded PE, you'll just have banks in-house the PE firms or any number of other structures that have the same result - people buying companies with other people's money and only sharing in the upside. Because that's a structure that benefits both sides (the banks and the PE companies) and they both want it to work.