Agreed but I don't think that Paulson ever positioned these as tail risk funds. And his losses aren't small - losing 18-20% per year will have you out of money quick.
However, he doesn't have to consciously think of himself as a tail risk fund for an investor to use him as an instrument.
The investor has to believe that risk is mispriced. Paulson is just a mechanism for expressing a short view.
Why not just put it in an index fund? Because Paulson has access to different kinds of shorts (CDS, convincing banks to allow him to short housing and so on).
I have no answer for 18-20%. That is, as you pointed out, unsustainable.